I like the new-look General Motors Company (GM), but Tesla (TSLA) should be shaking in its solar-powered boots.
It’s well-known that Tesla is gunning after Asia, but it’s had a number of setbacks in the region. In 2015 Elon Musk cut his China salesforce due to underperformance. Naturally, TSLA stock took a dip on the news.
GM stock, on the other hand, should benefit nicely in the coming years as General Motors doubles down on China. The company outlined plans today to unleash 60 new or refreshed car models in China over the next five years. And by 2020, all new products from its three main brands — Chevy, Cadillac and Buick — will be Internet-connected.
And while China might not seem like the wisest place to invest right now, I think the focus on Asia is an extremely shrewd move that will benefit GM stock owners in the long-term.
Here’s why TSLA should look at GM as a major threat in China, and why stock in General Motors is worth buying due to its focus.
Play China’s Middle Class With GM Stock, Not TSLA
It might sound absurd to say that General Motors is a better way to play the growing Chinese middle class than Tesla, but bear with me.
First of all, General Motors is already successful in China: In 2015, GM set a new annual delivery record in the country, delivering 3.6 million vehicles, 5.2% more than the year before.
And while total auto sales in China grew 4.7%, GM sold (not delivered) 5.4% more vehicles in 2015 than 2014. That boosted its market share from 14.7% to 14.9%. Chinese consumers know and trust the GM brand, which is why China is now GM’s single-biggest market.
Plus, while Tesla is generally considered to be more high-tech and innovative than all of its rivals, General Motors is setting up to change that. Ten days ago GM bought Cruise Automation, a startup focused on retrofitting vehicles with autonomous driving software, in an effort to speed development of self-driving cars.
It needn’t be said how interested Tesla is in self-driving cars — Tesla CEO Elon Musk focused on autonomous cars early and the company has hyped the self-driving vehicle as it tries to differentiate itself.
Tesla’s main differentiator, of course, is its focus on electric vehicles, and admittedly, GM has been slow to adapt there. Not anymore. The company plans on releasing “10 new green-powered vehicles in China under the Chevrolet, Buick, Cadillac and Baojun brands,” according to a Wall Street Journal article today.
If GM stock still doesn’t sound like a good way to play the rise of the Chinese consumer, consider its recent $500 million investment in Lyft, the ride-hailing service that competes with Uber. There have been rumors swirling that Tesla itself might go up against Uber (cutting out the middleman) once fully autonomous vehicles become a reality.
That may be true, but GM now has skin in the game, and it’s taking action: It recently teamed up with Lyft in Chicago for a leasing service that lets people without cars lease GM models at reduced rates to drive for Lyft. Expect more initiatives like that in the future, and don’t be surprised if they appear in China.
Finally, GM stock is vastly more attractive than TSLA from a valuation perspective: Tesla trades at 75 times forward earnings, while GM shares go for just 5.4 times forward earnings. On top of that, GM pays a monster, 4.8% dividend, something Tesla won’t be paying for many, many years.
At the end of the day Tesla’s an innovative company, sure. But General Motors has a great foothold in China already, and it’s focusing on all the right things.
Elon Musk, you’ve been warned.
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 or email him at editor@investorplace.com.
