Alright, sure we all know GM would go bankrupt as soon as the economy enters into another
recession. So this is hardly a surprising headline. You see when times are good, there
is more demand for cars.
The auto industry is a cyclical industry. That means when times are good business is
good, big profits, when times are bad, then minimal profits, or even losses. But if there
is all this demand suddenly for GM's cars, well they don't want to miss out, so they
will expand to make sure they cater to it. These expansions will add to extra debt and
cost of the company. The increased capacity will not be close to reached when times are
bad. And the debt will likely also become more expensive.
So when times are bad, they will be really bad. But it was worth it to take advantage
of the good times, especially if they know that when the times are bad, well that's when
the government will step in. And they will use all the tax payers money to keep them
afloat. We must keep this inefficient company around, producing inferior cars, that can
only survive when times are good.
But luckily for GM, they saw this coming, and they are fully paid up with all their
cronyism so they know that government has their back.
The question is, will GM get bailed out again? Will it be a recession that bankrupts them,
or are they perfectly capable of imploding the company all by themselves this time. Let's
explore what GM are doing in the realm of electric cars. And see what chance they have
of surviving the electric vehicle movement, or going bankrupt, again.
Let's start by looking at GM's EV objectives. GM say by 2025 they intend on launching 30
new global electric vehicles. I assume they mean different models.
They currently have one vehicle for the US, and that is the ugly little Chevrolet Bolt.
Now since the Tesla Model 3 launched 4 years ago, Tesla have managed to launch, well only
one new model since then, over 4 years. But GM think they can release 30 new models in
4 years.
GM is a significantly smaller company than Tesla in market cap, and available EV resources.
All of the best engineers want to work for Tesla, not GM. Tesla have significantly more
experience in making electric cars than GM. But this is what they say. Well if that was
the case, then can you just imagine how much worse they will be than any Tesla for starters?
They are clearly going to be incredibly rushed.
And they intend on selling one million vehicles a year by 2025 too. By the way, Tesla started
selling their original Roadster back in 2008, 13 years ago, and they have still not reach
one million units a year. But no worries. GM think they can reach it in 4 years. Wishful
thinking perhaps? But wait if they have 30 EV models, and one
million total vehicles, then that comes to 30,000 units per year for each model. Or less
than 3,000 per month. And maybe that's their strategy lots of niche
cars that separate them from Tesla, like perhaps massive cup holders for their customers Big
Gulp drinks. Or people who like cars with aerials, or others who just love having so
many buttons available to press in the cabin, and others who just cant get enough plastic.
Ok, so think about the level of R & D GM would actually be willing to put into a vehicle
that gets such few sales, probably not a lot, particularly when its also spread amongst
30 models. To compare the Model Y would be well in excess
of 2 million sales a year alone by this stage. Let alone the model 2.
Also the economies of scale on having 30 different models, produce such few units a year. Well
there basically aren't any. I think GM are just assuming all models will just be based
on their ultium battery platform, and the economies of scale will lie there.
Oh but what do we know about the ultium battery? They say their NCMA (Nickel Colbalt Manganese
and Aluminium) batteries are state of the art, and maybe state of the art of NCMA, but
this would be like making a state of the art CD player, so what? Everyones listening to
Spotify now. They are refining antiquated technology. Tesla has jumped so far from there
in battery technology, it leaves GM for dust. This is what Tesla were using in 2012.
But GM are at least partnering up with LG, which is a relief, at least they actually
do know how to make a decent EV battery. They are building the factory in Lordstown Ohio.
This is a $2.3 billion investment, and expected to produce 30 GWh/yr of batteries for them.
But they are doubling down already on another factory, with another $2.3 billion, and the
two factories will have a claimed capacity of 70 GWh a year, by 2023.
Factories however dont just make batteries on their own, they actual need the raw materials
too. Elements like cobalt and nickle, are scarce, and will also be in demand say 10
to 50 times as much over this decade. Well when demand increases, then so does price.
If they can even get a large enough supply. Yea, well that's what happens when you invest
in the wrong battery technology and chemistry, along without having vertical integration
of your supply chain. In other words, I find it unlikely these batteries will be much cheaper
than what they pay now.
Ok, so GM have at least acknowledged that they have to have their own battery factory,
to be in the EV game.
In fact this comes to a total EV investment of $35 billion by 2025. GM's current valuation
is $80 billion, so this is nearly half the value of the company. They are supposedly
putting it all on the line for EVs. GM currently sell around 6 to 8 million cars
globally each year. So even if they succeeded to 1 million a year, this is still a small
fraction of their sales, given they just invested half their entire market capitalization in
the company.
Tesla's battery technology will likely produce their vastly superior batteries at 10 times
the rate, or likely faster by 2025, and with 1/10th the size building and likely 1/10th
the investment.
If GM average 70 KWh per vehicle then perhaps they do have enough battery supply for one
million cars. Now here is where it gets tricky for them. They now have to try and sell these
EVs, at a profit, at least eventually, whilst also maintaining the majority of their legacy
business for cash flow. They can't cannabalize their ICE industry by creating an Osborne
effect. They also need to get the price of their EVs
down to a competitive level of their ICE cars. Remember these cars are not going to be great,
they will be designed very quick and rushed, or simply be shells of their existing cars,
that are not designed electric from the ground up.
They like to talk a big game about their HUMMER, as if its some how impressive, it starts at
over $110,000. This is not an attempt at EVs. At least Ford's Mustang was somewhat affordable.
They make out like they have done something impressive with it.
So they have to advertise their EVs to look more impressive than Tesla, whilst not down
playing their ICE cars. And I would say they have to spend more on advertising than they
do traditionally on their ICE cars too. Yea, thats the thing about Tesla, they sell
themselves, none of this manipulative advertising endorsed by your favorite celebrities. Well
that comes in at about $2,000 per vehicle, well ICE vehicle likely more with electric.
Then of course the car dealer costs and all the other associated costs of being a legacy
auto industry that doesn't fit within the business plan of the EV industry. Long story
short, if they want to compete at a price point with Tesla, well, they likely have no
margin. No profit. They make no money. If they are lucky, they may even lose money.
And with production lines doing an average of 30,000 units/year, well there arent many
economies of scale there. And it doesnt fit in with their old business
model of generating the majority of their profit through maintaining the cars with servicing
and parts. Although, thats not fair really, I am sure the cars are made badly enough so
that after the warranties expire then they will start falling apart and require maintenance.
Unlike Tesla's that are designed for Robotaxis to literally last over one million miles.
Yes, so that is if GM can compete at Tesla's price point. Which actually to be fair enough
they are currently at the same price point with their Bolt against the Tesla Model 3.
Which one would you rather have? Don't answer it was rhetorical.
But yes, their new ultium battery platform will possibly save GM money with their battery
packs. But Tesla has set the standard for range. So GM will need to compete with price
and range. So what will have to sacrifice? Well the cars will be extremely basic most
likely. Of course using GM's hideous plasticy designs, compared to a minimalist interior
from Tesla. Less is more people.
Basically the Tesla will offer so much more for the money, whilst Tesla are be able to
maintain an outstanding gross margin.
GM will be getting no margin, they will be taking none of Tesla's sales away from them,
they will just be competing with themselves, and possibly other ICE cars. In other words,
they are going to have to destroy their profitable ICE business, to have a chance with their
not profitable EV business. How do you juggle that? Oh wait, they also
have $35 billion more debt to contend with in the process too.
Tesla will keep getting better and better margins, and with those profits, Tesla re-invest
into R & D to make their products that much better, and further reduce costs.
Yes, there is plenty of room for more EVs companies in the industry, but the EVs have
to be profitable, and they don't help if they cannibalize your entire business as a result.
The EV industry is simply not a fit for the legacy autos. This is becoming more apparent
when you compare them against the Chinese EVs.
Oh but wait this is GM, what was I thinking. Government to the rescue! Well we hear about
the EV tax credits too, a system that in theory will be used to literally solve this issue.
With a $10,000 tax saving on any new EV, if it passes. Well in that case, then perhaps
GM truly can compete with Tesla and beat them on price, whilst possibly even scraping a
profit. $10,000 is an enormous amount on EVs, and it could potentially even be $12,500 for
GM if the unions part of the bill passes. The problem is though, if GM do compete on
price, then they are now undercutting their ICE vehicles. In other words a consumer will
be able to buy GM's EVs for possibly less, than their ICE cars. Not to mention the other
cost savings associated with electric vehicles.
Well if prices drop, demand increases, and now consumers want to buy GM's electric cars
over their ICE cars. Therefore their ICE sales fall, whilst their EV demand grows. Except
they can allegedly only make 1 million EVs a year. If the demand on their ICE cars dwindles,
then that's their cash flow gone. How are they going to fund the running cost of their
business, the losses will be huge? And this is if the economy is still doing well.
Also they are talking about 2025, well we would have expected to have seen the Tesla
Model 2 ramped up significantly by then. A car that comes with all the Tesla extras we
have come to expect, at a $25,000 price point. GM likely can't even get their heads around
how to make an EV for under $40,000 let alone sell one for significantly less than that.
This is not looking good for GM. I don't actually believe they will invest $35 billion. I think
they just need to show their shareholders that they are serious player in the EV industry
and that you don't need to worry about selling your stock. They dont actually care, they
have some nice golden parachutes for when they leave, as long as they have held the
stock price up just for that little bit longer. Unlike Tesla, with a CEO who is dedicated
to the company he built up and is the largest shareholder. GM are most likely putting on
one massively expensive dog and pony show.
These companies are not trying to save the world, or save lives. These are the companies
that put us in this situation in the first place. It's time they all go now, and make
room for some serious EVs, rather than tying up valuable resources for vastly inferior
products that no one wants, and aren't good business. Bottom line, there is no way GM
can come close to an EV like Tesla, at the same price point, and actually make a profit.
Perhaps GM's advertising can convince some consumers to buy a GM, but most likely the
majority of these consumers have not experienced a Tesla. The rest are just likely ludittes
who only drive Cadillacs or something.
Rest assured in the long run as consumers we are all better off, this is creative destruction
at its finest, and a result we will all have an improved standard of living. In safer cars,
that drive themselves, and dont kill us.
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