Over the past five years, General Motors' once-promising foray into the electric vehicle market has fallen flat. Demand for the Chevy Volt never met GM executives' expectations, and sales have fallen further due to higher competition and a decline in gas prices.
By contrast, electric vehicle specialist Tesla Motors has proven all of its doubters wrong as demand for its pricey Model S sedan has remained very strong. But as affordable electric cars become the new battleground, GM may be able to throw a wrench into Tesla's plans.
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Delays are almost inevitableBoth GM and Tesla currently plan to launch their affordable electric cars -- the Chevy Bolt and the Model 3, respectively -- in 2017. However, GM is likely to stick to that time frame, whereas Tesla's chances of getting the Model 3 ready by 2017 seem slim.
GM plans to bring its new electric vehicle, the Chevy Bolt, to market in 2017. Image source: General Motors
Tesla is far behind GM in the engineering process. GM has already built 55 Chevy Bolt prototypes and has begun testing them. As of April, Tesla didn't have a prototype ready -- and there's no evidence to suggest that Tesla is about to unveil a prototype, either. This puts it behind the original schedule projected by Tesla CEO Elon Musk in 2013.
Furthermore, while Tesla has a stellar track record for delivering top-notch vehicles, it has also been beset by frequent delays. The Model S was originally supposed to be available in late 2011, but the first delivery was delayed until mid-2012.
Even more concerning, the follow-up Model X SUV has suffered a nearly two-year delay. Tesla originally planned to begin deliveries in late 2013. In March 2013 -- just nine months before deliveries were scheduled to begin -- Tesla pushed back the launch by a year. Even this schedule proved too ambitious, and the first Model X delivery is now scheduled for September.
Tesla has more balls in the air than ever. Not only does it need to prioritize finishing the Model X and getting production up and running, it is also working on autonomous driving systems and building its battery Gigafactory. As a result, I would be very surprised if the Model 3 is ready by 2017. Late 2018 or 2019 seems like a more likely time frame.
Can GM really compete?Thus, it seems likely that GM will have a one-to-two-year head start on Tesla in the mass-market electric car business. Nevertheless, many observers dismiss the idea that GM -- typically seen as a painfully slow-moving organization -- can compete with a nimble upstart like Tesla.
Indeed, demand has persistently exceeded supply for Tesla's Model S, even as production has ramped up to an annual run-rate of roughly 50,000 cars. By contrast, GM has repeatedly missed sales goals with its plug-in hybrid Chevy Volt. U.S. Volt sales peaked at 23,461 in 2012, fell to 18,805 by 2014, and are down another 35% year to date.
The Chevy Volt plug-in hybrid has sold poorly.
GM has had no more success in the luxury electric market -- it sold just 1,310 Cadillac ELRs last year and sold 531 in the first five months of 2015.
The mass market might be differentThe crux of the argument that Tesla's Model 3 will be a big seller is that Tesla has already been so successful in the ultra-luxury market, and a significantly cheaper car will drive equally stunning success in the mass market.
I'm not so sure. This actually wouldn't be the first time that Tesla was selling a cheaper car with somewhat less range. It did so with the smaller-battery versions of the Model S, none of which sold very well. Model S demand has been heavily skewed toward the most expensive models.
GM and Tesla have fairly similar price goals for their affordable EVs: $35,000 before tax credits for the Model 3 and $30,000 after tax credits for the Chevy Bolt. However, if the Model S is any indication, the base Model 3 won't sell well. To keep the price down, many standard features of the Model S are likely to be options on the Model 3, driving actual prices far beyond $35,000.
Most Model S buyers have paid far more than the base price for their cars. Image source: Tesla Motors
By contrast, the Chevy Bolt base model will include more bells and whistles, so the quoted price may be a lot closer to what most buyers end up paying. That will make it more affordable for mass-market consumers who would normally pay $20,000 to $25,000 for a car (including options).
Furthermore, unlike Tesla -- which famously does no advertising and offers no discounts -- GM is likely to put its marketing muscle behind the Chevy Bolt while offering promotional pricing at times to drive sales. GM may also try to bring the base price down over time, as it has done with the plug-in hybrid Chevy Volt.
Will quality win?I still think Tesla will bring a better car to market in the Model 3 than GM will with the Chevy Bolt. The trade-off will be more missed development deadlines and a higher realistic price -- including the options that most buyers will choose.
GM CEO Mary Barra has made it clear that she intends to challenge Tesla by painting it as an elitist brand while promoting the Bolt as an electric car for the masses. It will be hard -- though not impossible -- for Tesla to fight off this image, since it needs to maintain its premium brand for the ultra-luxury market. Barra's job will be easier the more that the Model 3 is delayed, leaving Tesla with a lineup of $100,000 vehicles.
Ultimately, the outcome of this battle may depend on whether Tesla can provide a luxury experience at the base $35,000 price (or close to it). Otherwise, the Model 3 will end up being a $50,000 luxury car that competes with the likes of BMW and Mercedes, while GM and other mass automakers get the first crack at making a truly affordable electric car.
The article Could Plodding GM Undermine Tesla's Cheaper Model 3? originally appeared on Fool.com.
Adam Levine-Weinberg owns shares of General Motors. The Motley Fool recommends General Motors and Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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