General Motors Co. (NYSE: GM) desperately wants into the electric car business, just like every other global car manufacturer. Its current stab at the business is the Chevy Bolt, but sales have been poor. Tesla Inc.’s (NASDAQ: TSLA) latest results and the ramp of production of its inexpensive Model 3 make the GM effort irrelevant.
The Tesla Model 3 is the electric car company’s effort to sell mid-priced cars. It carries a price tag of about $35,000, although most current configurations of the vehicle are priced about $10,000 above that. Tesla says it can produce 6,000 of these a week by mid-August. Tesla’s near-term goal is to produce 10,000 a week, a run rate of over 500,000 a year. That would make it a mainstream car product.
GM’s Bolt is priced at about $35,000 as well. However, GM does not have to make many of them. Through midyear, GM sold 7,858 Bolts, up only 3.5% from the same period a year ago. The market has rejected GM’s effort to get into the electric vehicle market. If Tesla can produce half a million Model 3 cars, GM will never catch up. The fear among GM’s global competitors is that they will suffer the same fate.
Tesla management claims it will make a profit in the second half of the year. In its investor letter it said:
It took 15 years to execute on our initial goal to produce an affordable, long-range electric vehicle that can also be highly profitable. In the second half of 2018, we expect, for the first time in our history, to become both sustainably profitable and cash flow positive. None of this would be possible without the incredible efforts of our employees and the support of our customers, suppliers and investors. We thank you for your unwavering support and we have never been more excited on what the next few years will produce.
The rest of the auto industry had to hope Tesla would run out of money. Now, it is fairly clear it won’t. The Model 3 has no real competition in the United States, and it is unlikely that will change.
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