The first shots of the mainstream electric car war are still ringing in investors' ears after the widely publicized and highly-anticipated unveiling of the Tesla Motors (NASDAQ: TSLA) Model 3. The ultimate victor(s) will likely take years to determine, but the first battle of this war looks to be between the Model 3 and General Motors' (NYSE: GM) Bolt EV.
It's still very early to predict how the electric car market will ultimately play out, but here's a head-to-head comparison of TSLA and GM as they stand today in three critical areas: the cars, the businesses and the stocks.
Clearly, consumers and the market are impressed by the Model 3. But how does the car itself stack up against the Bolt?
In terms of pricing, both are intended to be affordable to the average car buyer, but initial price estimates can be tricky. Elon Musk has always said that the Model 3 will start at $35,000, and so far, he is sticking to his guns. The Bolt, on the other hand, will reportedly be starting at $37,500.
While the bolt comes loaded with lots of cool standard features, Model 3 buyers will likely have to pay up for upgrades. Sure, a bare-bones Model 3 could go for $35,000 but Musk says that the average price will likely be around $42,000.
Another key metric will be the range of the battery-powered cars. Once again, preliminary estimates can be unreliable, but GM is currently calling for "more than 200 miles" for the Bolt on full charge, while TSLA is saying at least 215 miles.
In terms of performance, the Model 3 reportedly can accelerate from 0 to 60 in under 6.0 seconds, while the Bolt reportedly does it in under 7.0 seconds.
Finally, when it comes to standard features, the Model 3 has a 15-inch floating display in the center dash. It also has TSLA's semi-autonomous driving system, Autopilot, but activating it costs extra.
The Bolt has a 10.2 inch infotainment screen, rear camera mirror with 80-degree digital view, low-energy Bluetooth that allows the Bolt to automatically pair with the driver's phone within 100 feet, and built-in 4G LTE Wi-Fi.
Although design is certainly a subjective area, Mashable performed an in-depth comparison of the Model 3 and the Bolt and declared the Bolt superior in terms of price, technology, design and delivery date and the Model 3 superior on performance and driving range.
Unfortunately, for GM, perception can be reality when it comes to the popularity of a product. In my opinion, the overwhelming positive reaction to the Model 3 unveiling likely means that, even if the Bolt is a better vehicle, the Model 3 will likely win the majority of the early electric market, at least in the first few years. First impressions are critical and TSLA has made sure to make a very positive one with the Model 3.
Clearly, the Model 3 and the Bolt will each have a lot to offer. In terms of the companies themselves, the war of reputation will be critical.
For TSLA, the biggest advantage the company has over GM is its trendy reputation. TSLA cars are cool now the same way the iPhone was cool when it first came out. TSLA will likely try to emulate the success of the iPhone and avoid becoming a "flavor of the month" brand.
Up to this point, there's a reason why TSLA has a reputation for luxury and exclusivity: it has been a luxury brand. However, when any luxury brand begins to offer lower-end products, they run the risk of tarnishing their brand's reputation. Just ask Coach (NYSE: COH).
Another major problem that TSLA faces is scale. TSLA bulls salivate over the company's goal of ramping from producing 50,000 vehicles in 2015 to 500,000 vehicles by 2020. However, that kind of scaling comes at a heavy price and a million possible problems. Sure, maybe TSLA pulls it off flawlessly, but GM's already there.
At the very least, TSLA shareholders should certainly be concerned about the company's track record of missing deadlines and underestimating costs.
TSLA's original estimate for Model X shipment was 2013. As time passed, that deadline was bumped back to late 2014 then Q2 2015. Not surprisingly, when Q2 2015 rolled around, TSLA announced one final delay before the car finally began shipping in late 2015. TSLA shipped just over 50,000 automobiles last year. If the company had that much of a problem shipping that number of cars on time, how is it going to handle the half a million vehicles it plans to ship per year by 2020?
The best indication of a company's future performance is its past performance. In my opinion, TSLA's Model 3 rollout will likely hit some bumps in the road at some point based on the issues the company had with the Model X rollout. Normally, when a company attempts to up production by 900% in five years, you would expect some problems at some point(s) along the way. However, at TSLA's current share price, the market may have little patience for setbacks.
GM's biggest problem is the public perception that it's nothing more than a relic of the "old auto industry." There has never before been a mass market for electric vehicles, and GM's Bolt will likely beat Tesla's Model 3 to market. However, if consumers don't think of the Bolt as cool, exciting and innovative the way they perceive the Model 3 to be, GM may still have an uphill battle in the electric vehicle market.
In my opinion, GM doesn't have to beat TSLA in cool factor. Even if GM solidifies a spot as the second best in the electric vehicle market, it would still be in an excellent position to maintain its huge profits. In fact, GM is only the third biggest gasoline car producer in the world today.
Looking at it another way, if TSLA meets its goals of producing around 500,000 electric vehicles by 2020, those sales will represent sales lost by the other auto makers. How big of an impact will that have on GM?
Assuming TSLA's market share comes evenly out of the pockets of the top U.S. auto makers, roughly 85,000 of those 500,000 automobiles would come out of GM's current 17% U.S. market share. Sure, GM wouldn't want to lose those 85,000 sales, but GM sold 9.9 million automobiles worldwide last year.
The point is, GM definitely wants to claim an early spot in the electric market. But even if TSLA takes the electric market by storm and executes its plan perfectly, GM's bottom line will barely be impacted at all in the next five years.
The stocks of GM and TSLA couldn't be more different. TSLA's bull case is summed up best in three words: growth conquers all. TSLA has been one of the top stocks in the market in recent years, surging more than 430% since early 2013, while GM is up about 9% in that same time.
The reason for the surge? According to Finviz, TSLA's sales have climbed at an average annual rate of 103.2% over the past five years, and the company's earnings are expected to grow by 154% annually over the next five years. GM, on the other hand, grew sales by only 2.4% annually in the last five years and is projected to grow earnings by only 4.7% annually through 2021.
Unfortunately for TSLA shareholders, the market has some extremely lofty expectations for TSLA that will be difficult for the company to live up to even in a best-case scenario. Incredibly, the market currently values TSLA at $31.3 billion, about 66% the size of GM's market cap. However, TSLA generates only about 2.6% as much revenue as GM and has a tangible book value only about 3.1% the size of GM's. Maybe the margin of error of these measurements is debatable. But any way you look at it, TSLA stock is currently pricing in a major success story and leaves very little room for upside.
TSLA's massive cash burn has long been a concern for investors, and the company burned nearly another $1 billion in 2015. As of the end of the year, it was down to around $1.2 billion of cash remaining, meaning it will likely need to raise more cash at some point before Model 3s hit the pavement. With the huge ramp-up in production and scaling that TSLA will need to compete with rivals that are 30 times larger, it's unlikely the cash burn will stop anytime soon.
While TSLA's stock currently trades at a forward P/E of 74.9 and a P/B of 30.1, GM is trading at a historically low forward P/E of just 5.1 and a P/B of only 1.1. In addition, GM pays a very generous 5.1% dividend at a payout ratio of only 23.1% to make up for its lower growth numbers.
The Bottom Line
The TSLA story is certainly an exciting one. The latest chapter, the unveiling of the Model 3, shows that the excitement may be higher now than ever before. However, a reputation for quality and excitement creates some extremely high expectations for a company like TSLA. Even Elon Musk himself has acknowledged that the market "sometimes gets carried away with our stock."
It's now up to TSLA to live up to those lofty expectations for the Model 3 and beyond. In the meantime, GM isn't going away anytime soon, and they will be fighting tooth and nail to maintain their massive share of the global auto market.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.