GM Is Dead. Long Live Tesla!

Could Tesla Motors replace General Motors as the standard-bearer of American automaking? Yesterday evening, Tesla established its first small beachhead on GM's turf.

Tesla is many things: The brainchild of PayPal founder Elon Musk. One of his two hobbies since selling out to eBay (Nasdaq: EBAY  ) , the other being commercial space pioneer SpaceX. An automotive start-up that's attracted investors as diverse as Google (Nasdaq: GOOG  ) founders Sergei Brin and Larry Page and old-guard automaker Daimler (NYSE: DAI  ) . And of course, Tesla is the maker of the Roadster, the only highway-legal, all-electric car on the U.S. market.

Step aside, GM. We can handle this.
Tesla confirmed yesterday that it will salvage the Toyota/GM Californian "NUMMI" joint venture, taking GM's place as Toyota's (NYSE: TM  ) manufacturing partner at the plant. For its part, Toyota confirmed its intent to purchase a $50 million stake in Tesla (matching Daimler's ante).

Thus, in one fell swoop, Tesla addressed three of the concerns that my Foolish colleague John Rosevear raised when discussing the IPO's prospects earlier this year. First, Tesla secured an automotive partner to provide it with an array of conventional gasoline-powered car models into which Tesla can integrate all-electric technology. It's acquired a manufacturing partner with true scale in its operations, which could jumpstart Tesla's ability to reduce the sticker price of its flagship product. Last but not least, Tesla has purchased itself a major factory.

And how! While under GM/TM management, NUMMI regularly averaged 6,000 cars produced weekly. Right now, Tesla will be happy to produce just 20,000 of its new Model S electric sedans per year. So Tesla's got capacity aplenty to expand as its popularity takes off.

TM + TM = ?
Will Tesla succeed in replacing GM, not just at NUMMI, but nationwide?

No. Even at $50,000 a pop -- half the cost of its Roadster -- Tesla's Model S costs a pretty penny. It's roughly twice the price of Nissan's Leaf, and Ford's (NYSE: F  ) Focus. (On the other hand, if the Model S can match or exceed the Roadster's 200-plus-mile range -- versus Nissan's and Ford's 100-mile claim -- it could be worth the doubled expense.)

With a limited market for its high-priced wares, Tesla's got a long road ahead of it before it overtakes GM and its $105 billion in annual sales. But it should be a fun ride.

Fool contributor Rich Smith owns shares of Google, which is also a Motley Fool Rule Breakers choice. eBay and Ford Motor are Motley Fool Stock Advisor selections. Motley Fool Options has recommended a bull call spread position on eBay. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 21, 2010, at 2:17 PM, Felsenwald wrote:

    'bout time. Foolish to not convert with this publicity on the latest oil / coal disasters. There has been much resistance from automakers to this essential change. Check what valentintechnologies and PML (proteanelectric) have done to make cars VERY efficient. Fools can expect the other car makers to come around really quickly now that Toyota and Tesla are teamed -

    Also wed high capacitance flywheel tech. with the electric motors and - voici' you have a lightweight completely safe vehicle using NO gasoline.

  • Report this Comment On May 21, 2010, at 5:07 PM, Clint35 wrote:

    I think Tesla is a great company doing great things. I think eventually it will overtake GM. But it will take a longtime simply because they're small and GM is huge. All Tesla has to do is keep doing what they've been doing. Assuming GM keeps doing what they've been doing for decades, Tesla's bound to win.

  • Report this Comment On May 21, 2010, at 6:23 PM, plange01 wrote:

    with the US sinking deeper into a depression by the day tesla is as dead as the disgrace GM...

  • Report this Comment On May 21, 2010, at 6:59 PM, SUPERMANSTOCKS wrote:

    I can't wait until these guys start seeing the fact that being electric is just as bad as gas. Just think of all the batteries that will need replaced over time and how many of them will end up in the dump. Which will cause a hazmat problem. Batteries don't last forever. Therefore they must be replaced. So what to do with the old stuff ??

  • Report this Comment On May 21, 2010, at 9:51 PM, baldheadeddork wrote:

    @supermanstocks - All car batteries used in hybrids and full electrics are 100% recyclable.

  • Report this Comment On May 21, 2010, at 10:30 PM, baldheadeddork wrote:

    I think "salvaging the GM/Toyota NUMMI venture" and "taking GM's place as Toyota's manufacturing partner" is just a little off. The Fremont Assembly plant had the capacity to produce 400,000 cars a year. Toyota has shut down production of the cars it made there, and Tesla is several years from needing a tenth of that capacity if things go great for them.

    What Toyota got for $50 million and a set of keys to an empty plant is a tiny bit of leverage over the California congressional delegation and one of the less expensive rounds of PR they've bought recently. It also gets them out of an ugly fight with local officials about cleaning up and rehabilitating the site. There's very little Tesla can teach Toyota or Denso about batteries or electric motors, and with Toyota's near non-existent interest in full electrics they don't seem to have a lot to gain from the partnership with Tesla.

    Is Tesla going to convert Toyota models to electric power? No comment according to both companies, which is kinda strange if the answer is yes. Will Tesla get access to Toyota components? That depends on the fine print of the deal, which no one is talking about. But ask yourself this: What Toyota components that weren't identifiably Lexus would Tesla want for cars that cost over $50K?

  • Report this Comment On May 21, 2010, at 10:56 PM, silenceforus wrote:

    My question is this:

    When will tesla be publically traded so I can invest in them??

  • Report this Comment On May 21, 2010, at 11:41 PM, damikco wrote:

    Teslas cars are nothing more than lotus elises with a stack of about 1000 laptop batteries in the trunk. Toyota has it own manufactoring problems and recall after recall so nothing will come from yhis PR stunt and distraction from killer camrys Toyota has been making latley.

  • Report this Comment On May 21, 2010, at 11:46 PM, TMFDitty wrote:

    @silenceforus: The IPO date has not yet been confirmed. So no one knows, and sometimes announced IPOs never actually happen.

    Not what you wanted to hear, I suspect, but that's where things stand today.

    TMFDitty

  • Report this Comment On May 22, 2010, at 7:40 AM, Jason87467 wrote:

    Someone mention Tesla will overtake GM? Only fools would believe that. I find this site as a good source to get a laugh.

  • Report this Comment On May 22, 2010, at 4:12 PM, nemo1107 wrote:

    @dfggfgf

    wanna stop spamming with your nonsense. K Thanks! :)

    And I like what Tesla has been doing to build. Sure they aren't profitable yet, but can you blame them? The start-up costs for a company had to be immense.

    This news will go a long way to getting their company out there to the general public. And if they ever get this IPO done it will help them to be more self-sufficient and stable in a tumultuous industry.

  • Report this Comment On May 22, 2010, at 6:34 PM, TH61 wrote:

    GM had a great lineup pre-08, before the bottom fell out. They are on the way back with a 40% increase in sales at the last report.

    They have a cut costs and trimed their model range.

    Comparing Tesla to GM is wishfull thinking, they are not even in the same league.

    Tesla is a great company and its practices and products might be the wave of the future but Tesla will never have the numbers to stay competitive.

  • Report this Comment On May 24, 2010, at 10:49 AM, plange01 wrote:

    from the growing lack of activity here its starting to look like the motley fool is dead...

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