General Motors Company (NYSE:GM) this morning announced an electric vehicle called the Chevrolet Bolt, which will hit the market in 2017. The Chevy Volt, which will retail for $30,000 and boast a range of 200 miles per charge, is a direct swing at Tesla Motors Inc (NASDAQ:TSLA) and its planned 2017 launch of its first mass-market vehicle, the Model III.
Tesla CEO Elon Musk has said that the Model III will go for around $35,000 and also have a range of more than 200 miles.
If you own TSLA stock, GM’s plans could be seen as a major cause for concern. To become one of the world’s major auto manufacturers, TSLA will have to rapidly grow its sales to hundreds of thousands of cars every year (for context, Tesla sold about 22,500 of its Model S vehicle in 2013) — and a direct competitor to Tesla’s first mass-market car would seemingly stand in the way of that expansion.
But GM’S Chevy Bolt won’t ding Tesla stock — in fact, by the time this narrative starts playing out in 2017, GM’s decision to take Tesla head-on will only help propel TSLA stock to new heights.
Tesla Has Overwhelming Advantages Over GM
Tesla already is thought of as the premier producer of electric vehicles in the world. By 2017, the Tesla brand will be even further associated with EVs — the percentage of Americans who will think “Tesla” when they hear “electric car” will be even higher than it is today.
Secondly, TSLA’s famous “gigafactory” in Nevada will be open and pumping out lithium batteries by 2017 — it will be the world’s largest lithium battery factory, and Elon Musk has said it will produce more lithium batteries in 2020 than all the existing plants in the world did in 2013. This should drastically reduce the input costs for the Tesla Model 3.
Chevrolet, on the other hand, will source the batteries for its Bolt from LG Chem Ltd, a South Korean company. LG Chem will not have the cost advantages from scale that TSLA will, not to mention it won’t be giving them away to Chevrolet on cost — Chevy will pay a markup, increasing input costs. So it’s not a stretch to assume Tesla’s margins on the Model 3 still will beat those on Chevy’s Bolt.
Furthermore, TSLA already has an infrastructure of “supercharger” locations, where Tesla drivers can go to recharge their batteries. Supercharger locations span the U.S., and according to Auto Express, they’ll connect all of the U.K., too:
“The Model 3 will come with free use of Tesla’s Supercharger network, which Musk said will enable Tesla owners to drive the length and breadth of the UK by the end of 2015.
Tesla also has the advantage of its direct-sales model that cuts out the dealer middleman — at least in states that allow it.
All told, the Model 3 is expected to drive Tesla sales into six figures by 2020, and the Gigafactory is expected to produce 500,000 battery packs annually by 2020 at 70% of today’s costs.
So TSLA certainly is putting itself in a prime position to succeed.
Elon Musk Welcomes Competition With Open Arms
Another strong indication that GM’s Chevy Bolt shouldn’t worry TSLA stockholders is how openly Elon Musk embraces competitors. In an enigmatic post on Tesla’s website in June 2014 titled “All Our Patent Are Belong To You,” CEO Elon Musk announced that Tesla has removed its patents “in the spirit of the open source movement, for the advancement of electric vehicle technology,” and that the company “will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”
He goes on, citing climate change as a reason he wants competitors to enter the market:
“At best, the large automakers are producing electric cars with limited range in limited volume. Some produce no zero emission cars at all.
Given that annual new vehicle production is approaching 100 million per year and the global fleet is approximately 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis.”
Applied to today, you can read that as “Go ahead, GM: Give Tesla your best shot with the Chevy Bolt. The world needs more than we can make, anyway.”
TSLA stock is down in early trading on Monday, but I disagree with Wall Street. The Chevy Bolt will only lend credence to the belief that EVs are the next meaningful up-and-coming vehicle type in the auto industry’s mass-market product mix.
Between Tesla’s established reputation for quality and a still relative dearth of popular mass-market EVs even if the Bolt takes off, TSLA stock will reap the benefits of Tesla’s incredible branding and early entry into the market.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.
