Bobby Yip / Reuters
The GM meeting was far more subdued, even if the well-liked Barra received a fair share of praise for what she has done since becoming the first female automotive CEO three years ago. Even GM critics have praised her efforts to break with often unhealthy traditions, turning the Detroit maker into a leaner, more nimble company focused on the future.
Perhaps nothing symbolizes what Barra has in mind more than the Chevrolet Bolt EV that went on sale a little more than a year ago. It became the first long-range, mainstream-priced EV, quickly winning kudos — including being named 2017 North American Car of the Year. But sales expectation are modest and analysts expect the Bolt to remain a money loser, like most of the battery-electric vehicles that the industry has so far launched.
Then there’s the Model 3, Tesla’s own entry into the mainstream world. It will cost roughly the same as the Chevy Bolt, around $35,000 to start — or barely half what the bigger Model S sedan now goes for. But Tesla has big expectations for the small electric sedan. Musk reiterated during the annual meeting that Tesla is projecting overall sales will reach about 500,000 vehicles in 2018, a five-fold increase from 2016, with the small sedan accounting for nearly 80 percent of that figure. Despite its lower MSRP, economies of scale, he insisted, will put the carmaker solidly into the black.
Add Musk’s plans to add even more models: an electric freight hauler set to debut in September, a battery pickup, and a compact SUV to complement the Model 3. Tesla may need anywhere from three to “possibly as many as 10 or 20” new assembly plants, the CEO declared. Meanwhile, he continues to predict big things to come from Tesla’s new Gigafactory battery plant in Nevada, from its energy storage business and from the solar roof tiles recently launched by new subsidiary Solar City.
But Tesla will, among other things, have to actually get the Model 3 into production, as promised, in July. It has never been on time so far, and even after lengthy delays, its products have a history of serious initial quality issues.
High-end Model S buyers might tolerate that, said analyst Dave Sullivan, of AutoPacific, because they usually have other cars they can rely on when the electric vehicle is in the shop. “Mainstream buyers are going to be more demanding,” he stressed, “because a Model 3 is more likely to be the only vehicle they own.
Who’s the Riskier Bet?
Even the Tesla bulls occasionally reveal some concerns. Pacific Crest analyst Erickson cautions demand for the company’s older models appears to be “plateauing,” which he says means “Half the (Tesla) profit pool could be facing declines as early as next year.” But that hasn’t led him to cut his target stock price.
As for GM, the maker could see plenty of pressure on those recent, solid earnings, especially if the U.S. auto market continues to decline as sharply as it has so far this year. While IHS Automotive was predicting overall sales would be down just 100,000 units from the 2016 record of 17.5 million vehicles, others have begun riving their forecasts downward.
And that’s where Detroit makers have traditionally panicked, rolling out massive incentives to prop up demand, rather than trimming production and laying off workers. But GM has shown unexpected discipline, repeatedly matching output to declining demand, even while eliminating entire shifts at five different plants since just last November.
The bottom line, it seems, is that GM and Tesla both face significant — and significantly risky — issues in the coming year or two. Both could be hammered if current plans miss the mark. In fact, a major issue with the Tesla Model 3 could risk the entire company, some observers caution.
But, for now, investors seem to view the young company more like a Silicon Valley tech firm, betting on the upside potential, even while they focus on the downside risks at GM.