For most Rolls-Royce Holding PLC (LON:RR.) represents the gold standard of engineering but as it goes cap-in-hand to shareholders with a GBP2bn rescue rights issue, is the British stalwart struggling because it is behind the times?
How easily would Rolls get its hands on GBP2bn, if it was leading the field of electric or hydrogen motors rather than being the jet engine maker of choice for commercial flight?
In engineering, Rolls Royce clearly remains one of the world’s top names, but its public image and prestige remains wedded to antiquity and nostalgia.
The statuette on the long bonnet of the classic luxury car is among the most iconic representations of Britain’s past – indeed, it is also the company’s past, owned as a subsidiary of BMW since the late 1990s.
The actuality of Rolls-Royce’s business is undoubtedly contemporary and dynamic, but it is hardly positioned as a company of the future in the way that Telsa is.
Telsa looks like it may be to the 2020s what Rolls-Royce was to the 1920s. And, significantly, the electric car maker has had no problem raising money, even in a pandemic.
In February, Elon Musk begrudgingly took US$2bn of funding in a stock sale only a fortnight after saying the company didn’t need it and, a month ago, filings to the SEC revealed Tesla will sell up to US$5bn of new shares at market prices “from time to time”.
On an investor call prior to February’s share sale Musk said: “We’re spending money, I think, efficiently and we’re not artificially limiting our progress. And then despite all that, we are still generating positive cash. So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level.”
Those comments, back then, came just before demand for Tesla shares exploded – and, setting aside whether or not the above can be taken at face value, it is most likely that the quick-fire US$2bn raise was driven by investor appetite.
Tesla enters the fourth quarter with strong investor support, having brought in US$7bn from equity sales, and, it is arguable the world’s standout stock for 2020. Only a glimpse at Tesla’s stock chart tells a simple story of a company becoming virally popular.
It is up close to 400% for the year to date, having begun 2020 at around US$86 per share, with its market value ballooning to US$400bn – sending Elon Musk’s personal fortune over US$100bn.
What’s perhaps significant is that much of the investment capital pouring into Tesla is said to be from a younger cohort than is usually associated with ‘industrial’ blue-chip stocks such as Ford or Boeing.
Tesla is much closer to being a Silicon Valley tech stock than it is an old school engineering company like Rolls Royce.
There’s a generation gap, and that’s as sad as it is concerning for the British engineer.
Elon Musk’s persona carries a caricature as a sort of real-life version of Marvel Comic’s Tony Stark.
Somewhat self-styled, it lends from the Telsa boss’s ambitions for space travel via SpaceX along with the physical integration of humans and machines via Neuralink.
While Musk and Tesla are unashamed forward-looking futurists the likes of Rolls-Royce have the appearance of being stuck to the past.
Tortuously stretching the comic book analogy further, if Telsa’s Musk is indeed Iron Man, then Rolls is much more like Howard Stark. It is a black-and-white portrait on the wall, worthy of a mention in an occasional prequel or origin story.
Assuming Rolls Royce gets its rights issue away and it can sufficiently shore-up its balance sheet, its remaining growth drivers lay in defence and power systems. Civil aerospace business doesn’t look like its going to recover any time soon.
Rolls Royce this morning launched the hugely discounted rights issue priced at 32p to raise GBP2bn, while a bond offering will bring in an additional GBP1bn,
Shareholders who back the rights issue may have to hold out hope that there’s some exciting but unmentioned some R&D lurking within the company. Something to capture the imagination of future-looking investors.
In the meantime, Rolls Royce may well remain a languishing proxy play on air travel’s eventual post-COVID recovery.