Tesla looks like the big winner, GM looks like the also-ran, and that's the narrative that Tesla fans have seized upon. But they're wrong.
About a century ago, give or take a decade, the Ford Motor Company was the American carmaker. Its Model T was the first successful vehicle for everybody, and its founder, Henry Ford, was the greatest businessman in history, warts and all.
At the time, General Motors was a disorganized cluster of brands, while Ford was cranking away. That all changed when Alfred Sloan took over as GM's President in the 1920s. He restructured GM to be what we now recognize as the first professionally managed global conglomerate, the model of the modern corporation.
GM's brands became a strength as the company was able to market a car to customers of "every purse and purpose." The philosophy contrasted with Ford's, which was to sell you any car you wanted, as long as it was a black Model T.
Sloan's ideas and execution fit perfectly with the arrival of postwar American consumer culture. Ford obviously didn't vanish, but it was relegated to No. 2 status as GM took control of half the auto market at its peak in the 1950s.
In the ensuing decades, as the US market changed and became more competitive, a lot of GM hatred emerged. When the company finally had to be bailed out by the government and entered bankruptcy in 2009, there was a thinly disguised sense of glee in some quarters. GM was an evil empire, and its merciless ways had finally caught up with it.
Interestingly, as GM was entering Chapter 11, Tesla was barely escaping its own insolvency. A few years later, it would launch its Model S sedan, with clear evocations of the Model T in the name. And in 2010, both GM and Tesla would stage IPOs.
Tesla's stock is up over 1,000%, while GM is up ... 34%, with much of that coming in the past year after a long period when shares went nowhere.
Tesla looks like the big winner, while GM looks like the also-ran, and that's the narrative that Tesla fans and devotees of "disruption" have seized upon. Gene Munster, a former analyst-turned-venture capitalist, has argued that Tesla could capture 65% of the US market, selling 11 million vehicle annually.
That's a nonsensical overstatement, but it summarizes the crazed enthusiasm around Tesla's prospects.
Naturally, it overlooks competition — and conveniently, too, because if Tesla gets bigger, it will have to compete more broadly in the US car market, where competition is brutal. GM is the biggest player in the market, and it has just a 20% share.
Tesla hasn't faced any meaningful competition yet because nobody has wanted to invest the money in electric vehicles when they make up only 1% of the global market. But as Tesla has grown — it delivered 100,000 vehicles in 2017 — established automakers have studied its progress and benefited from Tesla taking on all the first-mover risk.
When Ford took the plunge on mass production for a mass market, nobody was sure if motor cars would catch on in a big way. But Henry Ford understood that what people really wanted was an affordable "faster horse." And he delivered.
But like a lot of complicated visionaries, he wanted to control his vision completely. Sloan, on the other hand, scrutinized the market and how GM could serve it. Ford had taken the risks, and GM would profit from them.
Now GM CEO Mary Barra — the most impressive leader the company has had since Sloan — is preparing to turn Tesla into the 21st century's Ford.
Again, Tesla doesn't vanish under this scenario, just as Ford didn't vanish in the 1950s. But Tesla is far from dominant. It occupies a position in the middle of the US market — assuming it can improve its ability to build cars at scale.
Production at scale is what matters in the car business. The major players are exceptionally good at it. Tesla isn't. And while Tesla is far better at crafting a compelling story than GM or Toyota or Volkswagen, narratives only go so far when facing down the immense task of designing and building millions of vehicles all over the world.
This also applies when entering new lines of business. In the past two years, GM has put the pedal to the metal on everything Tesla pioneered and is now well ahead of the Palo Alto upstart on everything except Tesla's core business, luxury EVs that sell for $100,000.
Last week, GM's Cruise division pulled the cover off a fully autonomous, all-electric vehicle that can handle the intricate urban environment of San Francisco; the car has no steering wheel and requires no human driver, making it the first commercial application of a Level 5 self-driving car, if GM can get government approval to operate it in a ride-hailing system.
Tesla's Autopilot is currently state-of-the-art for semi-autonomous driving, but it's a Level 2 system. And while as with GM's vehicles, Autopilot is built into Tesla's cars (rather than bolted on later), it's nowhere near fully autonomous capability, despite the network effects that it enjoys as thousands of Autopiloting Teslas ply the roadways and gather data.
GM is also beating Tesla on mass-market EVs. As CEO Elon Musk and his team struggle to get the Model 3 sedan on track after a dismal start, GM's Chevy Bolt has racked up steadily increasing sales since its debut in 2016. By the time the Model 3 shows up in serious numbers, GM will be preparing a mid-cycle refresh of the Bolt and will be on its way to introducing 20 new electric cars by 2023.
Tesla has grand ambitions — a semi, a pickup, a smaller SUV, and a new sports car are all on the schedule — but with just one factory, there's no way it can keep up with a manufacturing giant like GM. As I've argued, GM has always had the ability to put Tesla out of business, it just didn't see the point. There's still no point in making Tesla vanish — the traditional auto industry is actually rooting for Tesla to succeed — but GM is no longer going to stand around and let Tesla capture new markets uncontested.
For Tesla, it won't be 2009 all over again. The company's core business of luxury EVs is sustainable and could be extremely profitable. It doesn't have to create new vehicles that it will struggle to build in the millions and sell for a low margin. The Model 3 looks more like a $50,000 car than a $35,000 car, and maybe it should be a lower-volume $50,000 car — with 15-20% profits.
Tesla is nimble and creative and always hustling, and if you can find a more charismatic leader than Musk, please tell me.
But when it comes to cars, being nimble isn't much of an advantage. This is true whether the cars run on gas or electricity, have steering wheels or don't. The automobile is the product of an industrial process. Modern communications technology — the core business of Silicon Valley — can be incorporated into cars, but if you can't get the wheels and windows and bumpers on, you've got nothing to sell.
Just as Ford was great at innovation in manufacturing, Tesla has been great at innovation in batteries, drivetrains, and software. It created the modern electric car, made it a sales success, and has pushed hard to be a player in self-driving tech. But it's about to see its first-mover advantage disappear.
Let's be clear: this doesn't mean lights out for Tesla — far from it. But it does mean that the company will face a new reality, captivating the world while becoming, at a practical level, just another automaker.