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GM Is Dead. Long Live Tesla!

By Rich Smith – Updated Apr 6, 2017 at 1:13PM

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In one respect, at least, Tesla has replaced General Motors.

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.

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