There was a period in my lifetime when the
phrase, “What’s good for GM is good for America” was thought by many to reflect
the operational orthodoxy of our nation. The source of this perceived wisdom,
if you would call it that, was said to be the Chief Executive Officer (CEO) of
General Motors (GM). A little research reveals that, Charles Wilson did not
exactly frame the statement the way is was interpreted and subsequently communicated
for years.
As it turns out, Mr. Wilson, President Dwight
D. Eisenhower’s nominee for Defense Secretary, was asked during a Congressional
hearing whether, if he were to serve in the capacity of Defense Secretary, he
could make a decision averse to the interests of General Motors? After
responding affirmatively, he went on to say that he:
“Could
not conceive of such a situation “because for years I thought what was good
for the country was good for General Motors and vice versa.”
So
rather than a braggadocios assertion about the universality of the GM brand,
Wilson’s statement was more like a little homespun humility about the degree to
which he had immersed himself in his life’s work. Be that as it may, even had
the erstwhile meaning captured the essence of some level of nationalistic
fervor about the goodness and pervasiveness of GM, the page has turned.
GM
was founded in 1908, and from 1931 to 2007 held the distinction of having been
the largest automaker in the United States. At that point Ford Motor Company
surpassed GM in value. By 2009, the Great Recession had taken the ultimate
toll.
The current
company, General Motors Company LLC ("new GM"), was formed on June 1,
2009, following the bankruptcy of General Motors Corporation ("old
GM"), which became Motors
Liquidation Company. At that point GM Stockholders lost all of their
investment.
The new
company purchased the majority of the assets of the old GM, including the brand
"General Motors". The current company, General Motors Company LLC
("new GM"), was formed in 2009 following the bankruptcy of General
Motors Corporation ("old GM"), which became Motors
Liquidation Company.
On July 10,
2009, General Motors emerged from government backed Chapter 11
reorganization after an initial filing on June 8, 2009. Through the Troubled Asset
Relief Program the US Treasury invested $49.5 billion in General
Motors and recovered $39 billion when it sold its shares on December 9, 2013
resulting in a loss of $10.3 billion. The Treasury invested an additional $17.2
billion into GM's former financing company, GMAC (now Ally). The shares in Ally
were sold on December 18, 2014 for $19.6 billion netting $2.4 billion. A study
by the Center for Automotive Research found that the GM bailout saved 1.2
million jobs and preserved $34.9 billion in tax revenue.
With that
lengthy preamble about GM, which had reclaimed its perch as America’s most
valuable automaker, the breaking news is that in successive weeks, Tesla caught
and surpassed the country’s top two automakers, Ford, last week, and GM this
week.
What exactly
is Tesla? Just in case you’ve been under a rock, or in a Rip Van Winkle state
of consciousness, Tesla, Inc. (formerly named Tesla Motors) is a
major American automaker,
energy storage company,
and solar panel
manufacturer based in Palo Alto,
California. Martin Eberhard,
and Marc Tarpenning initially founded the company in 2003, although it also
counts Elon Musk,
JB Straubel, and Ian
Wright amongst its co-founders. The company specializes in electric cars, Lithium-ion
battery energy storage, and, through their SolarCity subsidiary,
residential solar panels.
Tesla first
gained widespread attention following its production of the Tesla Roadster, the first
electric sports car,
in 2008. The company's second vehicle, the Model S, an electric luxury sedan, debuted in
2012 and is built at the Tesla Factory
in California. The Model S has been the world's best-selling plug-in electric
car for two years in a row, 2015 and 2016.
While the
message stands as important in its own right, it’s imperative to acknowledge
exactly what it represents, and what it does not. Tesla is…”a global
pioneer at the forefront of new technologies including electric vehicles,
assisted driving, shared vehicles, digitizing real-world information,
sustainable energy generation and scalable energy storage.” It is not outpacing
Ford and GM in vehicle sales.
The company’s
stock rose more than 7%, Monday of last week, increasing its market value to
$48.69 billion. Ford’s market cap is $45.31 billion. This week, Tesla valuation
was placed at $51.5 billion, topping GM’s $50.2 billion. The company has yet to
turn a profit, and lost hundreds of millions of dollars just last year.
However, a couple of days ago, it became the most valuable American automaker,
surpassing GM with almost $10 billion in profit on nearly $10 million vehicles.
Tesla for its part sold only 84,000 cars last year (with starting prices of
$68,000).
The
encouraging first quarter numbers come as Tesla ramps up for production of the
new Model 3, its cheapest car to date. The vehicle, a sedan, slated to launch
this summer, will have an entry-level price of $35,000, and has already
garnered nearly 400,000 pre-orders from people who made payments of $1000 for
reservations last year.
It should
also be noted that Tesla has a long-running saga of production problems, and it
has not come close to filling its ambitious and cleverly marketed goals. It not
only sells far fewer cars than its rivals in Detroit, it also employs a
fraction of their workforce.
The
competition has responded to the dubious nature of some of Tesla’s advantages.
GM’s vice chairman Bob Lutz had this to say:
“This is the
ultimate bubble, which is doomed to bust. Tesla cars are fine, but the business
model is not. The high cost of production is not recovered in the sale price.
All legacy car companies will soon have a variety of similar electric
vehicles.”
According to
the Wall Street Journal, David Cole, an investor in Detroit automakers, and
chairman emeritus of the Center for Automotive Research added:
“Its market cap is based on hype and
promises versus substance.”
Of course
Musk has heard it all. Not surprisingly, he has formulated what he considers a
most apt answer, and framed his response in a tweet Monday afternoon:
“Tesla is
absurdly overvalued if based on the past, but that’s irrelevant. A stock price
represents risk-adjusted future cash flows.”
At this very
moment Tesla and GM are both working on expanding their electric vehicle
profile and perfecting autonomous vehicle technology. Navigant Research
released a report Monday that says
Ford is ahead of Tesla and others in the self-driving car race.
GM and Ford
have a century-long head start on Tesla. But there is no denying Teasla’s
assault on the Stock Market is having an effect. It has made Musk one of the
richest men in America and given him widespread influence across a number of
arenas. Even critics who say Tesla could represent
a technology bubble in the stock market acknowledge that the company’s success
points to a new reality in the automotive industry that will reshape the
experience of driving for most Americans. The story of the company’s rise
illuminates the contemporary stratification of the American economy.
Eco-friendly government tax credits, a boom in financial backing, and the
promise of new school innovation coalesce to deliver in Tesla a badge for the
drivers who can afford its imposing price point. “Don’t Look Now, but There’s a New Sheriff in Town!”
I’m done; holla
back!
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