Can GM Beat Tesla at its Own Game?

According to Automotive News, General Motors’ CEO Dan Akerson recently set up a small team to study electric vehicle manufacturer Tesla, and last week he said GM plans “to compete head-to-head” against Tesla with the Cadillac ELR plug-in hybrid.

Akerson told The Detroit News that “when the ELR comes out late this year, early next, it’s certainly in the same postal code as Tesla – but now we’re going to move up. It’s not going to be a mass-produced car.”

Which is exactly the reason why I believe this is the wrong strategy for GM. The Chevy Volt and even the ELR cannot compete with Tesla’s design, cachet and ability – or at least very strong will – to challenge the auto business status quo and redefine the market. Trying to beat Tesla in its own game, that is, producing a small volume of highly profitable vehicles isn’t something the large and complex GM can dream of.  Akerson said that GM will “sell more Volts and lose less money on the Volts than [Tesla loses] on the Model S.”  While the profits of Model S are not quite were they should be (see analysis here), Tesla should be able to leverage the power of its brand to maintain reasonable profitability, at least for as long as electric vehicles remain a small boutique business – EV sales account for merely 4% of car sales volume and is likely to stay a single digit market for several years. Why is GM so interested in a market that by all indications is likely to be less than 4 million even by 2020? By comparison, GM’s Chevy brand alone sold 5 million vehicles in 2012.

On the other hand, GM has vast capabilities in areas that are arguably the biggest barrier Tesla is facing in becoming a volume player – a global retail and service network. GM should leverage these capabilities to compete where the EV market is more active, Tesla is vulnerable, and growth, however modest, is taking place. Indeed, sales this year through September of plug-in hybrid and battery-only auto of about 67,000 units already exceeded the about 52,000 units sold in all of 2012, with the Volt leading the segment, followed by Nissan Lead and Toyota Prius.

Right now GM’s strategy is stuck between Tesla and Toyota.

I am told that on October 15 Akerson is going to make a major announcement concerning GM’s EV and alternative fuel strategy.  Perhaps this announcement will clarify why Akerson is so obsessed with Tesla and what is his long term strategy for addressing the electric vehicle market. I hope he is not planning on purchasing Fisker’s government loan.

  • Tesla is not oblivious to the challenges in becoming a mainstream, mass-producing automotive company, although it probably does not have any aspirations to be a in the same space as Chevy.
    I discussed some the challenges Tesla is facing because of the lack of a service supply chain and the impact this has on becoming a global manufacturer and in delivering vehicle warranty repair.
    Tesla has a single manufacturing facility established in Toyota’s NUMMI plant in Fremont, California, operating at less than 5% of its maximum planned capacity of 500,000 units per year. This plant is more than enough to meet Tesla’s demand worldwide, and parts and assemblies are shipped from the U.S. to a small final assembly facility in the Netherlands. But in the long run, this is hardly economical.
    In an interview with Bloomberg Television Tesla’s CEO Elon Musk predicted that “within five years we’ll have our mass-market electric car available. We’ll start seeing hundreds of thousands of electric cars going to market every year.” And he indicated plans to establish manufacturing plants in Europe, the U.S. and Asia.
    In the U.S Tesla is still fighting an uphill battle to sell to and service consumers directly. This is a window of opportunity for GM and other OEMs to establish and grow this market, especially the below-luxury segment.