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Industry Analysis: It's Now or Never for U.S. Automakers General Motors & Ford to Catch Up to Tesla

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【Summary】As the shares of electric automaker Tesla soared since the beginning of the year, the company’s market capitalization surpassed both General Motors and Ford combined, which is an amazing accomplishment for the 17-year-old automaker. However, even before Tesla’s recent stock surge, it was still worth more than both GM and Ford individually, two legacy automaker’s with a 100-year head start on Tesla, leaving them struggling to catch up.

Eric Walz    Feb 15, 2020 7:00 AM PT
Industry Analysis: It's Now or Never for U.S. Automakers General Motors & Ford to Catch Up to Tesla
The Tesla family of electric vehicles, the Model X, Model 3 & Model S

As the shares of electric automaker Tesla soared since the beginning of the year, the company's market capitalization surpassed both General Motors and Ford combined, which is an amazing accomplishment for the 17-year-old automaker. With the exception of the niche electric Roadster, Tesla's first production vehicle did not come out until 2012, the year the Model S launched.

However, even before Tesla's recent stock surge, it was still worth more than both General Motors and Ford individually, two legacy automaker's with a 100-year head start on Tesla. 

As of this week, Tesla's market cap hovered just over $143 billion, while U.S. automaker Ford's market cap is currently just over $32 billion, and its rival GM is in second place with a market cap of $49 billion respectively. Right now, Ford's stock is trading just over $8.00 while GM's stock price hovers around $33.00.

Tesla's stock on the other hand, reached a record high this month, topping out at $968.99. Although it has since fallen below $800, it still remains a hot stock for investors. Why is that?

First of all, Tesla builds technologically advanced electric cars that consumers want. The sleek fully-electric Model S, Model X SUV, and mass-market Model 3 are all highly desirable and the demand for the Tesla Model 3 remains strong in the U.S., Europe and China, which is the world's biggest auto market. So Tesla's future looks bright.

Within 18 months of its introduction, the Tesla Model 3 became the number one selling car in Norway in 2019 by a wide margin, a country with the world's highest percentage of EVs on the road. It also became one of the ten best selling vehicles in the U.S. in all of 2019, according to data gathered by Clean Technica

Fully electric cars made up 42.4% of vehicle sales in Norway last year, a global record, rising from just 5.5% in 2013. That rise can be attributed to brisk the Tesla Model S and Model 3. Tesla's European sales continue to rise.

GM however, exited the European market in 2017 selling off its its European brands to France's PSA in a deal worth $2.3 billion. The U.S. automaker cited citing the toughening regulatory environment and years of losses for its Opel and Vauxhall brands.

Both the Tesla Model S and Model 3 are also traditional 4-door sedans, a category that GM and Ford abandoned in favor of more profitable full-size SUVs, pickup trucks and crossovers. By abandoning sedans, which have fallen out of favor with consumers recently, GM and Ford are conceding the electric sedan category to Tesla, without even trying to develop a competing electric sedan of their own.

It's safe to say that Ford and GM are chasing the market for short term profits without a clear long-term objective for going electric. Instead Ford and GM remain focused on highly profitable pickups and SUVs that are popular with consumers, instead of going all-in on electrification like Tesla has. 

2012 model s.jpg

The 2012 Tesla Model S

Currently, not one of GM's and Ford's pickup of SUV models are available in an all electric version. Although they are in the works now, it seems a bit too late, as the fully-electric Tesla Model S has been offered for the past 8 years.

Ford's upcoming Mach-E Mustang inspired crossover is due to hit the market in early 2021 and an electric version of the popular F-150 pickup is also in the works. While GM recently announced its resurrecting the Hummer brand as an all-electric pickup, instead of its building a smaller, consumer friendly electric SUV to compete with Tesla's upcoming Model Y crossover.

By spending millions on a Super Bowl ad to tout the return of the electric Hummer, GM is seemingly forgetting about its Chevy Bolt EV, a more practical and affordable mass-market EV the company might be better off promoting instead. Meanwhile, Bolt sales continue to tank while the Tesla Model 3 remains in high demand.

GM delivered just 3,307 Bolt EVs in Q4 2019, representing a 47 percent drop compared to the final quarter of 2018, when GM reported deliveries of 6,212.

While building the Bolt is a big first step in GM's goal of building over 20 new electric models by 2023, the slowing sales of the Bolt show that consumers are still not on-board with GM's electrification plans and are looking to other brands for something more than what the Bolt offers. 

Is Ford Relying on its Past to Secure its Future?

On the other hand, Ford may be relying too much on its past to secure its future. Although automakers often resurrect older nameplates as new modern vehicles, like Ford is doing with its new Bronco and has done in the past with the Thunderbird, Ford's new Mach-E is totally new and technologically advanced, so it should really stand on its own.  

The fully-electric Mach-E crossover is inspired by the iconic Mustang, one of the most legendary cars in the company's history and one that has secured a place in American culture. The Mach-E will even wear the Mustang badge, a move that upset some fans of the iconic sports car. 

Ford could have built the entirely new vehicle without referencing its past, but the automaker felt it needed the Mustang tie-in to increase the Mach-E's chances for success, which is understandable, but it also shows a lack of confidence for its chance of success on its own.

Although the upcoming Mach-E crossover is a huge milestone for the 117-year-old automaker and a sharp looking vehicle to boot, there is no telling yet if it will become a hit for Ford and if sales will sustain any momentum after the first few rounds of reservation holders get theirs. 

Meanwhile, Tesla is getting ready to move into the crossover space, and is beating Ford to the finish line again, so to speak.

The Tesla Model Y is the company's first-ever crossover, with deliveries set to begin in March, leaving both GM and Ford with no vehicle in their current lineup to compete with it. This is a position where no automaker wants to be. 

Furthermore, the Model Y has the potential to become a huge hit for Tesla, which will put more room between Tesla and its rivals. The company's chief executive Elon Musk predicts that the Model Y might outsell all of Tesla's other Model's combined, which might leave GM and Ford scrambling to catch up once again.

One might argue that both automakers are already scrambling to catch up to Tesla's success in the auto industry. However, unlike Tesla, they are turning to outside help in order to do so. 

Tesla's rise as the most valuable U.S. automaker and most well-known electric car company in the world has led to a new crop of EV startups, such as electric truck maker Rivian, following in its footsteps. The Plymouth, Michigan-based company seemingly came out of nowhere, right near the auto industry's backyard—Detroit. Rivian was founded in 2009.

Rivian designed both a highly advanced electric pickup and companion SUV, two segments that both GM and Ford currently dominate with fossil fuel-powered models. But just how long they will dominate this segment is yet to be determined, as another EV startup Nikola Motor Co unveiled its zero-emissions, electric and fuel cell all-wheel-drive Badger pickup. 

Nikola has also secured orders worth $8 billion for its other zero emissions venture, fuel cell semi-trucks for the shipping industry.

In just a few years, Rivian has raised billions from corporate investors, including e-commerce giant Amazon. The young EV startup also secured billions from venture capital firms and investment banks betting on the company's highly advanced electric vehicles. 

Amazon has already placed an order for 100,000 Rivain electric vehicles. Such a large order could have gone to GM or Ford, if they had the product to deliver, but they didn't.

Rather than risk being upstaged by another electric vehicle maker following in Tesla's footsteps, Ford too made a $500 million investment in Rivan. The companies have agreed to work together to develop an all-new, next-generation battery electric vehicle for Ford's future electric models using Rivian's in-house designed skateboard EV platform. This leaves Ford relying heavily on Rivian for help in building the electric architecture for its upcoming electric F-150 pickup, and also the first EV from its luxury arm Lincoln. 

Question is, why would Ford have to rely on help from a relatively new EV startup to build a version of the best-selling pickup truck in the U.S. for over 40 years, instead of designing it themselves in house?

It's a tough question to answer. But it does show Ford's lack of real commitment to electric vehicles over the past eight years during Tesla's rapid rise. During this time, Ford cranked out hundreds of thousands of highly profitable, gas-guzzling pickup and SUV models. Ford rival GM also did the same thing, with the exception of the Chevy Volt and Bolt, two groundbreaking vehicles. It seems as though both automakers were not looking far into the future like Elon Musk has with Tesla.

Both Ford and GM, must also contend with Tesla's new Cybertruck, a futuristic looking electric pickup that Chief Executive Elon Musk calls "the most advanced truck ever built." 

Now that Tesla, Rivain and Nikola Motor Company are moving into the electric truck and SUV space, Ford and GM can no longer rest on their laurels and the automakers need to come up with new electric vehicles that can compete.

Are U.S. Automakers Too Late in Catching up to Tesla?

It's safe to say that Ford and GM's recent electrification plans are primarily based off of the success of Tesla, as well as from other EVs, like the Nissan Leaf and Toyota Prius. Had consumers not bought these vehicles in large numbers, both U.S. automakers might not have planned on introducing their own EV models so soon. 

However, as Tesla continues to upend the auto industry, legacy automakers are left with little choice but to jump into the EV space, or risk falling behind and losing sales to more competitors in the future.

Japanese automaker Toyota has offered the hybrid Prius since 1999. Nissan's fully-electric Leaf has been on sale since 2010, even before the Tesla Model S came out. All three vehicles sold unchallenged by U.S. automakers for over ten years, with the exception of GM's Volt and Bolt.

Meanwhile in Europe, where the push go electric is even greater than in the U.S., European luxury automakers Mercedes Benz, Audi and BMW are introducing their own fully-electric models to compete with Tesla, but not with Ford or GM.

Audi released its first fully electric SUV the e-tron this year, followed by Mercedes Benz with its EQC luxury electric SUV. BMW is also developing new electric models like the i4 sedan that is rumored to have a range of over 400 miles. 

South Korean automaker Hyundai already has its fully-electric Nexo SUV on the market, as well as a hydrogen fuel cell version of it. Toyota also introduced a fuel cell version of the Mirai in 2014, while Honda introduced the fuel cell Clarity in 2017.

A consumer in the U.S. today looking to purchase a fully-electric vehicle now has multiple choices, and only one comes from a U.S. automaker, which is the Chevy Bolt. 

However, Bolt sales are already declining instead of increasing like the Tesla Model 3, which means consumers are looking for something more, which Tesla is planning to deliver with its new Model Y crossover.

This leaves Ford and GM with no choice but to come up with some highly desirable electric vehicles rather quickly to remain relevant as the auto industry transitions to electric vehicles. This is something both legacy automakers are both capable of doing with the right investments. However, the two automakers need to execute their plans quickly.

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