Tesla Stock: Can GM And Toyota Hurt Tesla Motors Inc (TSLA)?

  • Tesla shares have been sliding in the aftermath of Trump becoming the US president-elect.
  • Investors are worried about Trump's stance regarding the need for government incentives for the clean energy sector.
  • GM and Toyota recently announced that they will soon launch mass-market Electric Vehicles (EV).

Tesla (NSDQ:TSLA) shares have been sliding as investors continue to weigh life under a Trump administration. Trump said on his campaign trail that the government should not be in the business of picking winners and losers in the energy sector. This in effect means that the new administration is unlikely to continue incentivizing EVs the way previous administrations have done, though in any case, Tesla was set to exhaust its $7.5K federal tax credit in 2018. The removal of incentives for solar energy is also likely to negatively impact future sales for firms such as SolarCity (NSDQ:SCTY) which Tesla is set to acquire after shareholders of both companies approved it last week. But, here's what Tesla investors should worry about more.

Tesla investors though, have a potentially bigger problem on their hands: a full-scale entry of traditional automakers in the EV space. General Motors (NYSE:GM) and Toyota Motor Corp (NYSE:TM) have lately upped the ante in the EV game, with GM announcing that it has commenced production of the all-electric Chevy Bolt in its Orion Township, Michigan plant. Sale of the much-touted EV will begin late this year in Oregon and California before a national rollout in 2017. Meanwhile, Toyota has announced that the rollout of its first mass-produced EV will begin as early as 2020. Toyota's bold entry into this space will mark the first time the company is expanding beyond fuel-cell and hybrid vehicles. How serious is the implied long-term threat to Tesla?

Emergence of Tesla fighters

GM and Toyota are the world's biggest manufacturers of the internal combustion engines, with combined annual sales of 18M+ vehicles per year, a sizable chunk of worldwide car sales of more than 75M per year. In contrast, the plug-in market is much smaller, with global plug-in sales of 515K recorded during the first nine months of 2016, or about 687K annualized. Nevertheless, the wide gulf between the two markets is likely to narrow in the coming years, given that the plug-in market grew 54% YoY through the first nine months while the traditional auto-market has remained flat.

Also Read: Is Tesla Stock A Buy After The SolarCity Merger? Tesla Motors Inc (NASDAQ:TSLA)

The emergence of traditional automakers as true Tesla competitors is beginning to take shape, as opposed to the recent past when automakers only dabbled in plug-ins in order to meet government standards on carbon emissions. For instance, the Chevy Bolt is now being viewed as a worthy Model 3 competitor. The Bolt will feature a 238 miles driving range vs 215 miles for Model3 and cost of $37,500 putting it just above Model 3's $35K.

These two vehicles, however, have significant styling differences, with the Bolt built like a small station wagon while the Model 3 is a sedan with both front and back trunks. Both vehicles come with standard safety features including automatic braking and blind spot warning. Model 3 though pips the Bolt due to the option to pay more for extras such as Autopilot, automatic lane change, automatic parallel parking, and the ability to summon your car remotely.

But ultimately, there's one convenience that might prove a strong selling point for Model 3 over the Bolt-supercharging ability. Tesla owns 4,360 supercharging stations where drivers can recharge 80% of their batteries in under 20 minutes. Tesla vehicles can also be recharged at the numerous level 2 Destination Chargers.

TSLA-7_new

Source: Electrek

GM has refused to commit funds to build out supercharging stations, preferring instead to let companies like Tesla do all the heavy lifting. This in effect means that Chevy Bolt owners will only be able to charge their vehicles at the much slower ChargePoints. While this is probably to be expected from a traditional automaker, it can severely limit future sales of GM plug-ins. All Tesla supercharging stations are DC fast-chargers which charge much faster than a typical ChargePoint. Only 320 of the more than 30K ChargePoints are DC-fast chargers.

These limitations might curtail GM's ability to compete fully with Tesla. Moreover, GM recently killed its Cadillac ELR luxury plug-in hybrid after it failed to win over customers. That's not a very good track record. IHS has predicted that GM might only be able to sell 30K Chevy Bolts during the first year after launch. That's less than 10% of the 370K Model 3 orders sitting on Tesla's books.

Also Read: Is Tesla Stock A Buy After The Trump Win? Tesla Motors Inc (NASDAQ:TSLA)

Toyota is a wildcard

Of the two traditional automakers, only GM will be able to compete directly with Tesla, since both companies are pushing lithium-ion batteries whereas Toyota is looking to chart its own course with hydrogen-powered vehicles. Toyota has already sold about 100 Toyota Mirai hydrogen cars in the California region and expects to sell another 3,000 units in 2017.

The Japanese automaker has promised to build a hydrogen-powered EV with more than 300kms driving range on a single charge. But with only about 100 hydrogen refueling stations in the entire world and no clear commitment from hydrogen vehicle automakers including Toyota, Honda, and Hyundai to expand the network, it might take years before Toyota can start causing serious trouble for Tesla.

Investor Takeaway

One thing that Tesla has and traditional automakers such as GM and Toyota lack is a brand with a fervent following. Tesla has demonstrated its full commitment to build EVs that are not only highly functional, but stylish and safe as well. It also has backed it up with an extensive recharging network. These traditional automakers might catch up with Tesla over time. But right now Tesla investors have little to worry about.

Looking To Invest In Auto Sector? Here Are Our Latest Top Auto Stock Picks which have outperformed the S&P 500 by 113%.

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"First they ignore you,
then they laugh at you,
then they fight you...,
then you win."
~Mahatma Gandhi
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