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GM is reportedly working on an electric car that will have a 200-mile range and $30,000 price tag. When and if this car comes to completion and hits the markets, it will attempt to steal market share from Tesla (NASDAQ:TSLA), a company that is also said to be working on a more affordable alternative to its Model S. This is an interesting development.

We still don't know when, if ever, the car will be available for the consumers to buy and it may take several years before that happens. According to the Wall Street Journal, the required technology to build an electric car with a 200-mile range is already here; however, the cost of the battery is too high to make it affordable for most consumers. Because GM is the top car company in the world by volume, the company has a massive "economy of scale" to enjoy; however, the company has limited exposure to electric cars with the exception of its Volt model, which didn't sell a lot of units.

Volkswagen (OTCPK:VLKAF) and Nissan (OTCPK:NSANY) are two other car companies that are hoping to make a lot of progress in electric vehicles between now and the end of the decade. By the end of the decade, the volume of global electric cars is expected to pass several million, which is really large compared to today's volume of several thousand.

Battery prices will have to get a lot cheaper and the volume of battery production will have to get much larger before electric cars can be produced and sold in large volumes. Electric cars have a lot of advantages that non-electric cars don't enjoy, such as lack of regular maintenance, limited repairs, government subsidies, and cheaper energy. This is why a $30,000 electric car can steal market share from a $20,000 gasoline car in many markets. This is especially true in countries where having a car fixed or maintained costs a lot due to high labor costs (i.e., North American and Western European nations), or countries where gasoline costs too much because of taxes (i.e., most European nations).

As the market leader in electric cars, Nissan currently offers the Leaf for under $30,000; however, the car's range is limited at 75 miles. The car also doesn't have the good looks and "cool factor" of a Tesla car. Earlier this year, the Leaf passed 50,000 units and it sees pretty strong demand in Europe (particularly in Norway where Tesla's Model S also sees strong demand). Most people use the Leaf for commuting between work and home or other short distances, such as a trip to a grocery store. The Leaf is not meant to be used for long road trips, and Tesla's Model S is the better alternative for those that are looking to cover longer distances with their electric cars.

Tesla's battery costs are said to be much lower than the industry average. The company has also developed some patented methods for increasing the efficiency of the batteries it uses for its cars. The battery costs are expected to fall as the technology to produce them develops further, making an affordable long-distance car more feasible.

GM's move can help and hurt Tesla at the same time. It will help Tesla because Tesla's main goal is to make electric cars a mainstream thing and increase their usage as much as possible. If GM can come up with an affordable electric car with long-distance, this can increase consumer awareness for these cars and help with Tesla's sales. Also, GM's car probably won't have the "cool factor" or the good looks a Tesla car has; however, this is a subjective call to make. Furthermore, if GM is investing its resources to make progress in an area where Tesla is, this should speak volumes to Tesla's successes and to the impact the company is making in the car industry. On the other hand, with its large distribution network and marketing power, GM is likely to steal market share from Tesla if it can successfully create an affordable long-distance electric car. We may also see GM licensing some of Tesla's patented technologies to make it happen, which is another positive possibility for the investors of Tesla.

Other car companies, such as Ford (NYSE:F), are working on hybrid models while making their gasoline cars more fuel efficient as they go. For example, the 2005 model of Ford's small SUV Escape could get 23 miles per gallon in highway and 19 miles per gallon in the city. In 2008, the same car's gas mileage increased to 26 miles per gallon in the highway and 20 miles per gallon in the city. Today, Ford Escape users can get 28 miles per gallon in the highway and 22 miles per gallon in the city. Between 2005 and 2013, Ford Focus' city mileage increased from 22 per gallon to 27 per gallon (representing a 22% increase) and the car's highway mileage increased from 29 to 37 (representing a representing a 28% increase). Obviously, as the range of electric cars improve due to better technologies, the range of gasoline cars (per gallon of gas) will also keep improving. Some people assume that gasoline cars will just sit there without any improvement while electric cars keep improving themselves. It is clear that improvements will come in both sides. For example, Ford's Ecoboost technology has made remarkable achievements in the last few years.

Speaking of GM, the US government is getting ready to dump a bunch of shares in the market after acquiring the company in 2008 in order to save it from an imminent death. This may pressure the shares in the short term. On the other hand, GM's current valuation is decent with a trailing P/E of 12 and forward P/E of 10. While the company is having a lot of trouble in Europe, it's doing well everywhere else in the world. Unlike Ford, GM doesn't have a dividend and it will have to wait for a government approval before it can issue dividends. Between the two companies, I prefer Ford because the company's performance is much stronger in Europe, it has its own finance segment (i.e., Ford Credit), and the company has a decent dividend yield. There is also the Alan Mulally factor that makes Ford a better investment, but I already talked about it in several articles.

As more and more companies are noticing the changes in consumer tastes and preferences, we will see more and more fuel-efficient cars. While gasoline cars improve their efficiencies, electric cars will also see many improvements and steal some market share from gasoline cars. In conclusion, GM's move towards an affordable high-range electric car will be good for the entire industry.

Source: GM To Attack Tesla With An Electric Car