2013/09/26

Why GM has a close eye on Elon Musk and Tesla

A previous version of General Motors would not have even paid as much as a glance at tiny Tesla Motors or Elon Musk. Not so today. Here's why.

By Doron Levin
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FORTUNE -- In the bad old pre-bankruptcy days, no General Motors executive worth his or her salt would have dignified tiny Tesla Motors Inc. or its brash founder Elon Musk by emulating or praising the automaker's battery-powered Model S.
Dan Akerson, GM's (GM) chief executive officer, isn't an old-line Detroit auto executive. He's the guy, recruited from the private-equity world, who was put in charge of stamping out GM's arrogance and putting the auto giant back on its feet. What's gotten his attention is the Tesla Model S's range of up to 265 miles -- depending on battery option -- on a single charge. That compares with GM's Chevrolet Volt, an extended-range electric vehicle that travels about 50 miles before it must recharge.
GM executives have been working on new battery technology that they say will give future electric vehicles a range of 200 miles. The automaker isn't describing the vehicle precisely, though Akerson has hinted that a future Cadillac EV is a probable competitor to the Model S.
Akerson no doubt is also watching the eye-popping performance of Tesla's stock. Since its initial public offering in the summer of 2010, when shares were trading at less than $20 each, Tesla (TSLA) has rocketed to more than $180 a share. With a market capitalization of about $22 billion, it's worth more than Fiat. (Anyone who has driven some of Fiat's less successful models won't be shocked.)
GM's market capitalization -- number of outstanding shares multiplied by the stock price -- is more than $55 billion. GM sells about 9 million vehicles annually worldwide. Tesla had sold a grand total of 11,000 units of Model S through August. The car starts at about $70,000; the fanciest version costs more than $100,000. Tesla's share price could be wildly overblown -- or Musk might be the next Steve Jobs or Bill Gates, and those who don't realize it will be kicking themselves one day. Akerson won't be in that group.
Unlike Jobs and Gates, Musk did finish his undergraduate education. But he dropped out of a Ph.D. program in applied physics after just two days to be an entrepreneur. Akerson is a graduate of the U.S. Naval Academy.
Having already made a fortune as a co-founder of Paypal and succeeded in launching a rocket ship that docked with the International Space Station, Musk brings instant credibility to the automobile business. He's even more formidable because the Model S has been widely praised by owners and reviewers like Consumer Reports.
Electric vehicles remain a very small sliver of the automotive market, mostly because the batteries are expensive, range is limited, and gasoline remains affordable. Things change. Battery technology is attracting more investment capital and creative minds all the time; a major breakthrough in the amount of energy a battery can store at a reasonable cost could occur at any time.
Tesla stock, on the other hand, might be a short-lived bubble. More than a quarter of its shares are on loan to short-sellers, those who sell shares they don't own with the hope of repurchasing and replacing them later at a lower price. GM's Akerson surely isn't one of those selling Elon Musk short.

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