Is The Electric Car Industry Still Viable? – General Motors Company (GM), Tesla Motors Inc (TSLA)

The high hopes that the electric car will eventually conquer a substantial market share in the auto industry is still alive and kicking. Sales of leading brands of hybrid and electric cars continue to rise, but their profitability is questionable and the market share remains very low. Despite the small market share and questionable profitability, Investors continue to show their confidence in the industry: shares of Tesla Motors Inc (NASDAQ:TSLA) rose during the year (year-to-date) by almost 13.6%. So is this industry making big strides? Let’s examine the recent developments in the electric car industry.

High growth, no profit

Despite the spike in revenues of Tesla Motors Inc (NASDAQ:TSLA) during 2012 – the company’s revenue grew by more than 102% compared to 2011 – it continues to present a loss. Most of this loss is due to the company’s research & development provision that in 2012 accounted for nearly 66% of the company’s revenue. Tesla Motors Inc (NASDAQ:TSLA) expanded its R&D provision by nearly 31% compared to 2011. Since the company continues to invest in making better and efficient cars, this could eventually lead to a rise in demand for its cars. Until such time, the electric/hybrid car industry is likely to keep on growing but at the same time remaining a small fraction in the car industry.

Sales in the U.S continue to grow

During January and February, sales of electric powered cars (not including hybrids) rose to 9,781 compared to 3,089 cars sold during the same time in 2012. This represents more than a 316% gain. Nonetheless, this industry accounts for only 0.43% of the total number of cars sold during the year to date. Last year the electric power market share was lower at 0.36%. So the market share of the electric power car is rising but remains very small fraction of the total car industry.

During 2012, total sales of electric powered cars (including hybrids) rose by 72% compared to 2011. Total cars sold in the U.S. increased 13.4% during 2012 compared to 2011. These numbers show the sales of electric powered cars are rising at a much faster pace than the total number of cars sold. In 2012, the market share of electric powered cars (including hybrids) was 3.38%. Assuming the market will continue to grow as it did in 2012; the market share of electric powered cars will reach 10% of the total car market by 2015.

Let’s break it down to the leading brands. General Motors Company (NYSE:GM) has its Chevrolet Volt, which is plug-in hybrid vehicle; the Volt is rising in sales, but remains very low in terms of share of total sales of the company. In January 2013, the company sold 1,140 Volt cars; in January 2012 the company’s sales of this vehicle were only 603. The Volt brand is still a drop in the water for General Motors Company (NYSE:GM) as the company sold in February alone nearly 225 thousand cars and in 2012 more than 2.6 million cars. This means the number of Volt cars represent less than 0.5% of the total number of cars the company sells each month.

Moreover, several analysts estimate that this car is loosing money for General Motors Company (NYSE:GM). The numbers go as high as $49 thousand for each car! I’m not sure if this number is correct and it should be taken with a grain of salt. But not all companies are necessarily losing money on their electric/hybrid car.