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Will Volkswagen’s 82 Billion Dollar Bet On Electric Cars Crush Tesla?

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German carmaker makes enormous investment in electric cars. Do they know something the rest of us don’t?

It is Volkswagen (OTC: VLKAY) and not Tesla Motors (NASDAQ: TSLA) that holds the electric-vehicle future. If just one-third of VW’s electric ambitions bear fruit, Tesla is doomed.

The German-auto giant plans to spend $82.5 billion on electrification; an unidentified source told Reuters. Fortune reported [2] in November 2017 that VW has as many as 80 electric models on the drawing board. Note: Volkswagen itself refused to comment on this rumor which means it is nothing but speculation.

Some important specifics that indicate the rumor might be true include:

Volkswagen Has The Money To Electrify

Volkswagen has the money to electrify as the automaker had $45.18 billion in cash and short-term investments on December 31, 2017, YCharts reported. That number was up from $43.3 billion in December 2016.

This fact means Volkswagen can pay for much, or perhaps all of its electric ambitions with the money it has in the bank. There will be no need to borrow or issue additional stock.

Volkswagen also reported a net income of $12.75 billion and earning $19.96 billion in cash from financing on December 31, 2017. Those funds came from annual revenues of $260.62 billion at the end of 2017. That number was up from $240.48 billion in December 2016, and $236.67 billion in December 2015.

Revenue figures indicate that VW has recovered quickly from the “dieselgate” scandal. The December 2017 annual revenue of $260.62 billion almost matches the December 2014 revenue number of $268.63 billion. If this continues, Volkswagen’s revenues will exceed the September 2014 high of $270.15 billion sometime next year.

To add icing to the electric cake, Volkswagen reported $506.508 billion in assets on December 31, 2017. That means it should have no trouble borrowing money if it needs to finance new plants or equipment to electrify.

Volkswagen not only has the money to electrify, but it also has the resources to borrow the money and develop the technology needed to make EVs a reality. That gives it an advantage Tesla will never be able to match: money.

Tesla Has No Money

Tesla Motors reported an “annual net income” of -$1.961 billion on December 31, 2017. That means it lost nearly two billion dollars during the year instead of making money.

Elon Musk’s company reported an “annual operating income” of -$1.632 billion on December 31, 2017. That means Tesla lost $1.632 billion from its operations.

Disturbingly, Tesla’s actual losses might be far more substantial, as the company reported an annual “free cash flow” of -$4.142 billion on December 31, 2017. That means Tesla may have lost more than $4 billion from its operations in 2017.

Tesla Is Not Making Any Money From Its Operations

Tesla Motors also reported an “investing cash flow” of around -$4.19 billion and an operating cash flow of -$60.65 million, which sounds incredibly low on the same day. There was one positive cash flow number at Tesla: it had a financing cash flow of $4.415 billion. This amount comes from the borrowing and financing of cars the company sells.

The bottom line is that Tesla is not making any money from its operations. Despite the losses, it had some money in the bank in the form of $3.523 billion in cash and short-term investments on December 31, 2017. This figure is low for the auto industry; the Ford Motor Company (NYSE: F) reported cash and short-term investments of $38.927 billion on the same day.

A disturbing conclusion that one can make here is that the money Tesla has in the bank came from the financing cash flow. That is, it might be money that Elon Musk borrowed. It might explain why Tesla has so little money in the bank, when the ailing Fiat Chrysler Automobiles (NYSE: FCAU) reported having $15.756 billion cash and short-term investments on New Year’s Eve in 2017.

Tesla Cannot Compete With Volkswagen

Here are a few nonfinancial numbers that prove Tesla clearly cannot compete with Volkswagen:

A glance at the Volkswagen Group reveals that the $294.57 Tesla share price from April 19, 2018 was pure fantasy. The company lacks the resources to justify that price. The same data shows that Volkswagen AG (ETR: VOW3) was undervalued at $212.

Skeptics will wonder what the future of Tesla is. The simple answer is that Tesla will collapse and its remains will be gobbled up by another automaker. There are too many customers and too much high-quality technology at Tesla for a competitor like Tata Motors (NYSE: TTM) or Volkswagen to pass up. The Tesla brand will survive, but Elon Musk’s company will disappear.

I would not be surprised to see Tesla join the Volkswagen Group at some point in the future. Smart investors will ignore Tesla and buy through traditional automakers like VW.