Depending on your taste, deciding whether to buy Tesla (NASDAQ: TSLA) or Toyota Motor (NYSE: TM) the car could be light. But the same cannot be said for the shares of the two companies. As with their cars, choosing between Tesla and Toyota stock depends on your preference and investment style. Let’s see how these two stocks differ and which one is better to buy right now.
To understand the difference in scale, let’s look at the current and projected production capacity of the two companies. Toyota sells over 10 million vehicles every year, although there were slightly fewer in 2020 due to the pandemic. For comparison, Tesla sold 0.5 million vehicles last year. For example, last year Toyota sold almost 20 times more cars than Tesla.
Tesla is focused on expanding production capacity by building new factories in Berlin and Texas. If the company increases deliveries by an average of 50% per year, as it hopes, it could reach about 2.5 million vehicles by 2024, which is about a quarter of Toyota’s current capacity. That would definitely be a commendable achievement for Tesla, given that Toyota is a 84-year company.
By comparison, before the fall in 2020, Toyota’s sales grew at an average annual rate of about 1.4% from 2016 to 2019.
Tesla leads the electric car segment
When it comes to electric vehicle sales, Tesla wins out unconditionally. While all Tesla sales are electric vehicles, Toyota sold just 3,346 all-electric vehicles in 2020. However, by 2025, the company plans to increase the number of its electric vehicle models from four to 15. Toyota also sold 48,513 hybrid electric vehicles. (PHEV) last year.
So while Tesla is working on increasing production, Toyota has a lot of work to do on the EV front.
Tesla is working hard to improve its Full Autonomous Driving (FSD) features. The company and its CEO Elon Musk often talk about how it is moving in this direction. In the last quarter, the company said its vision-based autonomous system, independent of radar or lidar technology, was “nearly ready” for the US market. The company already sells its FSD feature as a separately paid upgrade and provides its customers with software upgrades “over the air”.
Notably, Tesla’s FSD feature is nowhere near complete, and it could take years for Tesla to achieve it. Currently the feature offered by the company is only at autonomy 2. However, with each improvement, this feature should become more useful and valuable for drivers.
In contrast, Toyota is not as loud and outspoken about its efforts in the autonomous driving segment. But this does not mean that he is far behind. The company is working to promote automated driving technology through the Toyota Research Institute in the United States and Japan. He also recently partnered with self-driving technology company Aurora.
Toyota already launched autonomous 2 cars in Japan in April and plans to launch them in the US this fall. Like Tesla, Toyota also offers software updates for these models wirelessly. So Toyota may not be far behind Tesla when it comes to autonomous driving.
Tesla highly rated
When it comes to pricing, even the most ardent Tesla fans find themselves in a tough spot. Tesla’s market cap is 2.4 times that of Toyota. Its price-to-sales ratio is over 18, while Toyota has less than 1.
There are many reasons for such a high rating for Tesla. The company changed an entire industry. Electric vehicles have been around for decades, but Tesla has shown that they can be commercially produced and have their own market. Other automakers have followed Tesla’s lead. Tesla shares are priced as a tech company, not an automobile manufacturer.
Another key factor that may not seem like a big deal, but can really be key, is Tesla branding. She has managed to create such a high level of brand awareness and loyalty that she can get some premium on her cars just for that.
Finally, Tesla has been collecting autopilot mileage data for years. This is used to train the vehicle’s software to improve autonomy. As with electric vehicles, Tesla could become the leader in autonomous driving in the future.
However, it’s important to note that Tesla has previously overlooked the expected timing of autonomous driving. The problems associated with this are complex and the technology requires extensive testing before it can be commercialized as it carries a lot of risks. Tesla has done a tremendous job so far and may very well continue. But he has something to prove to justify his high assessment.
And best buy …
While Tesla is getting a lot of attention for its advanced driving features, they are no more advanced than Toyota right now. If Tesla has the potential to achieve full autonomy, the same is true for Toyota. Toyota’s stock has been underperforming the broader market in the past 10 and 20 years, although the company is undoubtedly one of the world’s leading automakers.
Toyota’s share price does not seem to fully reflect its steady performance and growth over the years. The stock also offers more than modest returns of around 2.4%. By comparison, Tesla’s share price already reflects a lot of optimism about the company’s future. Thus, Toyota Motor shares now look like a better deal.
This article represents the opinion of an author who may disagree with the “official” recommendation position of Motley Fool’s premium consulting service. We are colorful! Bidding on an investment thesis – even our own – helps us all to be critical about investing and make decisions that help us become smarter, happier, and richer.