What can GM learn from Tesla and its brash young founder and Chairman Elon Musk?
General Motors has confirmed the company’s Chairman and CEO Dan Akerson has commissioned a study of Tesla Motors, the upstart electric carmaker from Silicon Valley that has countered the generally weak market for battery cars by exceeding its sales forecasts this year.
According to GM vice chairman Steve Girsky, GM wants to be sure that Tesla doesn’t leave it behind in the field of automobile innovation. The start-up maker has generated almost universal raves for its Model S battery sedan and while it’s stock has taken some hits in recent days, Tesla shares are still up about 450% over the company’s 52-week low – and trading at more than three times higher than GM.
The decision to study, rather than write off, Tesla reflects a very different attitude at General Motors since its 2009 emergence from bankruptcy, Girsky said during an interview on Bloomberg TV. “In the old days, they would’ve said, ‘It’s a bunch of laptop batteries and don’t worry about it and blah, blah, blah,’” Girsky said.
The attitude is gone under Akerson, the GM Vice Chairman insisted. And that means the Detroit maker has to recognize the Model S has a lot going for it, not only a drivetrain that can yield as much as three times more range than most other electric vehicles, but a stylish exterior that would still win good reviews even if the battery drivetrain were replaced with a more conventional gas or diesel engine.
Tesla has wholly embraced the latest mobile technology as an integral part of the vehicle, including a 17-inch touch-screen dashboard control and Internet connectivity. Akerson, who has broad experience in the telecommunications industry, has been pushing GM to take advantage of the new mobile technology.
Last year, he recruited veteran telecommunications executive Mary Chan to spearhead the effort of bringing more connectivity into the car and getting GM’s customer’s to agree to pay more for it.
Akerson also was principal executive at the Carlyle Group, a leading private equity firm. In private equity, market capitalization is the ultimate measure of a company’s success. And by that measure, Tesla has become a huge success over the past year as the value of its stock has surged and made it one of the most valuable automakers in the world.
(For more on Tesla’s wild stock market ride this week, Click Here.)
It hasn’t been entirely a free pass for the Silicon Valley-based Tesla. It began the week having seen its stock rise more than 250% since just January 1, and many expected to see even bigger gains as the company was added to the influential NASDAQ 100 tech stock index.
Then Goldman Sachs released a report that asserted Tesla’s stock price was overvalued and could decline to between $84 and $113, depending on the rate of sales growth. After peaking at $133 a share on Monday – giving Tesla a market capitalization of $15 billion, the stock took a share downturn, dipping as much as 20% by Wednesday before rebounding. It will open on an up note Friday at $119.03.
In the first quarter the Model S outsold GM’s plug-in hybrid, the Chevrolet Volt for the first time, which was a wake-up call for GM, Girsky suggested. American buyers snapped up 4,900 sedans, about 5% over Tesla’s forecast, and the maker’s founder and Chairman Elon Musk now expects to sell about 21,000 units this year.
While GM set an initial goal of selling more than 45,000 Volts in the U.S. last year, it fell well short of that target and after moving just 9,855 for the first half of 2013, industry analysts say it will be hard-pressed to match Model S demand for the full year.
Studies of rival automakers aren’t exactly new around Detroit whose automaker’s commissioned extensive studies of both Honda and Toyota back in the 1980s as the Japanese carmakers rapidly expanded their foothold in the U.S. In fact, GM entered into a joint venture with Toyota in the early 1980s in hopes of learning about the Toyota production system. That study has largely shaped GM’s current, worldwide manufacturing system.
(And, ironically, the California factory that the Detroit maker and Toyota jointly operated through 2009 – which was originally a GM plant – is now where Tesla assembles the Model S.)
GM’s financial crisis and bankruptcy in 2008 and 2009 was blamed on legacy costs, unaffordable and rigid union contract, a bureaucratic operating structure unable to react to changing market place and an out of touch senior management that had ignored the company’s problems for too long.
However, GM’s product development process escaped serious criticism because then vice chairman Robert Lutz had made progress in reforming the system. Virtually all of the new products GM is now touting — from the new Cadillac ATS to the Volt and the new 2014 Chevrolet Corvette — were started under Lutz. Not all of the now-retired vice chairman’s efforts, notably the 2013 Chevrolet Malibu, were successful.
However, GM now has to figure out a way to keep the product pipeline filled for years to come, which is shaping up as a major and complicated challenge for GM”s senior management headed by Akerson. The CEO has notably been one of Detroit’s most vocal advocates for electric propulsion, giving the go-ahead to the Volt, the new Chevrolet Spark EV, and the Cadillac ELR plug-in to come in 2014.
GM and its products have won a number of awards recently, the maker, significantly, topping the latest J.D. Power Initial Quality Survey for the first time. But the challenge will be to keep the momentum going, and GM hopes it just might learn something from the new kid on the automotive block.
Paul A. Eisenstein, contributed to this report.
When your sales forcast is next to nothing in the grand scheme of auto sales, it’s not too difficult to exceed it. Like most novelties, initial sales are good and then they die off because these types of products are impractical for 99% of consumers.
With all due respect, I would argue that the Tesla is not merely a “novelty” item for a couple of reasons. First, Americans are becoming more aware of the ecological benefits of electric automobiles; second, moving away from a fossil fuel-based economy has significant benefits, from being able to recharge one’s car at home to weaning ourselves from dependence on otherwise-hostile foreign governments; third, most consumers drive their cars for relatively short trips for commuting and shopping, so the ultimate range of a vehicle is less a limitation than your assertion of “novelty” implies; and, fourth, the “impractical” aspects of electric vehicles are largely technological problems which can be solved in any number of different ways – better batteries, faster charging stations, etc. So although Tesla is a niche player in the market at this point, they have attracted GM’s attention precisely because GM recognizes that Musk is onto something with Tesla.
Do you think electricity is free? Do you think dealing with toxic waste from the EV batteries is a minor issue? Do you REALLY think the U.S. actually needs to import one gallon of crude oil? If you do then you are sadly mistaken on ALL counts.
Who do you think is going to PAY for the infrastructure to support these impractical devices that are often dangerous? Who do you think is already subsidizing every EV sold? Why should I or any other auto purchaser or tax payer subsidize the pipedreams of those in denial?
If you or anyone else wants an EV then pay the full price for it as I pay for the vehicle of my choice. You should also be paying your fair share for road taxes as you use the roadways just like everyone else. You should NOT get a tax break for buying an impractical vehicle where the public is paying for the infrastruture for a BAD solution to a problem that does not exist. YOU should be paying the full price for an EV and for the infrastructure if you desire to purchase/use these ill conceived novelty items – not the rest of society.
GM has made lots of bad purchases in the past and even though Tesla may cash in by duping the gullible, GM can use them as another tax deduction when they write them off and kill EVs entirely. I’m still waiting for GM to re-pay tax payers the FULL amount of the bail-out LOAN, which they have not and never will.