A tale of two companies: Tesla, Ford and the need for long-term plans
For the first time since April 2017, Ford eclipsed Tesla in market value. These two companies — Ford with a 116-year history and Tesla with a 15-year track record — have swapped market valuations over just the last few weeks. Ford’s market capitalization is $41 billion compared to Tesla’s $37 billion. In 2018, Ford sold 2.5 million cars in the United States alone — 10 times the total cars Tesla sold worldwide over the same period. Tesla employs 49,000 people compared to 200,000 for Ford.
How can savvy investors glean new insights into the long-term readiness and resilience for these and other companies? The truth is, we don’t have enough information because a key piece of the puzzle is largely missing from the cadence of company and public discourse: a company’s publicly disclosed long-term plan.
The need for long-term plans
Tesla has demonstrated an unrivaled ability to showcase its cutting-edge position in the new economy where environmentally conscious consumers drive disruptive market change. That’s in part why Tesla has swayed investors to value the company more than Ford without having yet delivered a profitable year or dividend. Recently, we caught a glimpse of Tesla’s long-term vision mastery when as part of a $2 billion capital raise its CEO, Elon Musk, predicted the company’s valuation should soar 10-plus times to $500 billion fueled largely by innovations in self-driving technologies.
But how do we know if this is profound or puffery? Astute investors increasingly cast doubt on Tesla’s ability to execute against its grand ambitions over the long run. And while Ford has been slower responding to rapidly evolving market dynamics, its leadership has shown resilience and a renewed appetite for embracing change.
Today, investors and shareholders rely upon quarterly earnings and public financial disclosures to assess a company’s value. Yet, the challenges and opportunities facing the auto industry require a long-term lens. How will the industry adapt to issues such as self-driving vehicles, access to a skilled workforce and scarcity of fossil fuels? How can investors know if the CEOs of these companies — or any company — are well positioned for a future that promises to be even more disruptive, complex and environmentally and socially attuned? How can we reconcile the friction between achieving quarterly results with the call for long-term sustainable growth?
In short, how can we tell if Tesla, Ford or any company is "future-fit"? A company’s long-term plan should answer these questions, and more.
The demand for long-term plans
From Jamie Dimon to Warren Buffett to Larry Fink, large institutional investors have expressed the view that understanding the company’s long-term view is critical to a successful investment strategy. For too long, short-termism on Wall Street has eroded the sustainability that strategic investors seek. A solution to ending these short-term pressures is communicating long-term business plans to long-term investors. CECP’s Strategic Investor Initiative (SII) is set-up to facilitate this.
To date, CEOs from large publicly traded companies who have presented their long-term plans at one of SII’s CEO Investor Forums include BD, IBM, GSK, Johnson & Johnson, Medtronic, Nestle, NRG, Unilever and UPS. The list of institutional investors that support SII — a roster that represents over $25 trillion in assets under management — include State Street, Vanguard, BlackRock, Goldman Sachs and the Ford and Heron Foundations. These organizations all share the common belief that:
- CEOs should publicly present their company’s long-term plan for long-term growth;
- Effective long-term plans should depict how financially material environmental, social and governance (ESG) factors are integrated into business decisions and drive value creation;
- CEOs that embrace this radical transparency will outperform companies that elect to duck and dodge disclosures on long-term metrics.
Over time, we expect that the delivery of publicly and freely available long-term plans will fill the information gap and become a mainstream feature of the schedule of corporate communications with shareholders.
Amazon CEO Jeff Bezos underscored the importance of long-term thinking when he said: "I don't think that you can invent on behalf of customers unless you're willing to think long-term, because a lot of invention doesn't work. If you're going to invent, it means you're going to experiment, and if you're going to experiment, you're going to fail, and if you're going to fail, you have to think long term."
What’s in a long-term plan?
The three requirements for presenting a long-term plan that conforms with SII’s standards of excellence are:
- All Long-Term Plans (LTPs) adhere to Regulation Fair Disclosure requirements meaning they must be made publicly and freely available and livestreamed;
- LTPs should integrate financially material environmental, social and governance (ESG) factors and describes how this contributes to long-term value creation;
- The disclosures should be forward-looking, with a target outlook spanning three to seven years.
In the tale of two companies, who wins?
Returning to the comparison between Ford and Tesla, my bet is on Ford. If both companies publicly disclosed their long-term plans, however, then investors would be well-positioned to make better-informed decisions. And when hundreds of companies follow suit, then we would achieve the information symmetry needed.
In a world fraught with uncertainties, CEO leadership demands stepping up and stepping out with a bold, intergenerational vision and purpose and a long-term plan achieving both. CEOs must point the way to a future where our children and children’s children can flourish. Companies that remain silent both violate their responsibility and lose their opportunity to help shape a thriving company and planetary future.