Stock market to carmakers: hurry up and go electric

Tesla’s shareholders think electric cars are coming, and they are going to result in a cash bonanza specifically for owners of Tesla Motors stock.

Why else would they be paying 48 times Tesla’s projected 2019 earnings?

The thing is, Elon Musk has his own idea of what would constitute success for Tesla. His plan is more, eh, “holistic”.

He says he didn’t start Tesla to make money at all. His real goal is “accelerating the advent of sustainable transport” – in other words, to prod carmakers to hurry up and start building electric cars.

The impact that Tesla will have is fairly small in and of itself. It will change peoples perception perhaps, but it will not in and of itself change the world.

“But if large numbers of people are choosing to buy the Model 3, and the car companies see that theres no excuse left anymore because the cars long range and the cars handling and acceleration is better in every way than a gasoline car, and its affordable—and people are pretty sure this is what they want to buy—then thats what will prompt car companies to invest real money into electric vehicle programs of their own, and indirectly, by spurring competition, Tesla can be the catalyst for a multi-order of magnitude shift of the entire industry towards electric.

News from Delphi Automotive this week seems to show that Musk is getting his way.

Car parts are not sexy

Delphi Automotive (NYSE: DLPH) is one of the world’s biggest car parts manufacturers. It employs 161,000 people at 126 factories. It was spun out of General Motors in 1994.

This month Delphi announced it’s planning to spin off its powertrain business. The powertrain is basically the guts of the car. It comprises engines, transmission, drive shafts, differentials and drive wheels.

Why is a car parts manufacturer getting out of the car parts business? Well, Delphi wants to focus on the future. It’s keeping the part of the business that’s focused on electrification, sensors and software.

Basically, one of the worlds biggest car parts suppliers has decided that car parts aren’t sexy any more. It’s betting that the future is electric.

It’s not hard to figure out what Delphi’s board is thinking – Delphi trades on a price earnings ratio of eleven, compared to Tesla’s 308. Spinning off the boring car parts business means Delphi can trade on a suitably flashy multiple. And the market loved the plan. Shares bumped 11% after the announcement.

Prodded by the market

The market is giving the likes of Delphi a good reason to focus on electric vehicles, even if the board personally aren’t convinced. From my reading of traditional car industry executives and journalists, it’s hard to find many who think electric cars will matter a lot.

Bob Lutz is a good example. He’s been an executive at BMW, GM, Chrysler and Ford. He thinks electric cars will take off slowly, if they take off at all. Last month he said:

“The electric vehicle market is maybe 1%. It could go up to 4 or 5%. Surveys show maybe 4 or 5% of Americans feel so deeply about climate change and the environment that theyre willing to make a personal sacrifice to make their contribution. Most of them are called Prius owners.”

What’s interesting about this Delphi story is that the market is pushing auto industry executives to go electric. Regardless of whether or not the leadership of Delphi thinks electric is likely to take off, the market is giving it a good reason to press ahead.

This is the kind of deal Musk wants to see. Up to now, t auto industry has been incredibly timid when it comes to investments in electric cars. Now the market is prodding car industry executives hurry up, and get on with it.

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