Success where others have failed
Tesla has achieved initial success in the electric car arena where a significant number of others such as Fisker Automotive have failed. He also made competitive inroads against Detroit where predecessors like DeLorean, and Tucker have failed. The company has adopted an all-robotic manufacturing system which has lead it to achieve the highest gross margin in the auto industry, a surprise given its footprint in high-cost California.
The accomplishments at Tesla Motors haven’t gone unnoticed by the major automakers such as General Motors Company (NYSE:GM) and Ford Motor Company (NYSE:F). Not only is Tesla becoming profitable, cofounder Elon Musk has defied industry standards through his decision to sell cars via direct-to-consumer. Tesla Motors owns and operates 37 showrooms where consumers can do everything from take a test drive to make a final purchase.
The bold actions by Tesla Motors Inc (NASDAQ:TSLA) have ruffled the feathers of auto industry trade groups, which have employed a system of franchised car dealers dating back to the Ford Motor Company (NYSE:F) Model T in the early 20th century. In particular, Tesla is not allowed to sell its vehicles directly within the State of Texas, and auto dealers are fighting to maintain current laws. North Carolina, for instance, has passed a law prohibiting sales of Tesla cars there, except through dealers.
Tesla’s success with electric cars is most impressive when compared to General Motors Company (NYSE:GM), as CEO Dan Akerson recently stated to the public that General Motors Company (NYSE:GM) loses money on “every” Chevy Volt and the list price on a future model should be $7,000 to $10,000 lower as the company hopes to lower its cost of production. Akerson also stated that GM has sold only 26,500 of the Chevy Volt in total, while Tesla Motors is on track to sell a similar number of vehicles this year alone.
Electric cars remain a niche market and sidestory for General Motors. Wall Street is bullish on the former “Government” Motors as its production costs following bankruptcy are the lowest in company history. The company earns significantly more profit on truck sales than sedans, and sales of large pickups are up 20% year-over-year for the industry according to Autodata Corp. Americans are set to replace an aging vehicle fleet which bodes well for the major automakers.
Outside the United States, General Motors has considerable growth potential with the Buick and Cadillac brands in China, and Europe appears to be turning around. Analysts at Asian investment firm CLSA recently raised their price target on GM to $40 and issued a “buy” rating based on the factors above.
Wall Street is also bullish on Ford Motor Company (NYSE:F) as its 2013 Ford Fusion Hybrid, arguably a low-end Tesla Model S competitor, has an attractive look with a front-end similar to the Aston Martin Rapide and a best-in-class 47 mpg fuel efficiency. Ford is benefiting from pent-up demand with its new Fusion as the vehicle received a much-needed design overhaul.
Ford announced in a formal press release that February marked its best sales month ever for Fusion, with a 600% yearly Hybrid increase in high-demand markets such as Los Angeles. Fusion offers 47 mpg combined city/highway compared to only 41 mpg for the Toyota Camry Hybrid.
Aside from hybrid vehicles, Ford is poised to benefit from higher North American truck sales, an improved balance sheet, and a reduction in European cost structure. Analysts at Craig-Hallum raised their price target on Ford to $18 from a previous $15 back on May 16.
Foolish takeaway
While only time will tell if Elon Musk will become the next Steve Jobs, Larry Page, or Jeff Bezos, at present he certainly appears to be well on the way. Tesla Motors is revolutionizing the electric car market (and disrupting the traditional auto industry) similar to how Apple Inc. (AAPL) transformed mobile phones with iPhone and introduced an entire new product category with iPad.
As if Tesla needs an additional lever for momentum, the company is hosting its annual shareholder meeting on June 4, 2013 which is certain to gather further media attention and investor interest. I suspect Tesla will become a retail investor favorite, given its growing public attraction and market publicity. Elon Musk might need to steal Samsung’s motto, as “the next big thing is already here.”
Let me know your thoughts on Tesla Motors in the comments section below. Can Tesla continue to disrupt the traditional auto industry, or will General Motors and Ford deliver a strong response?
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The article Looking for the Next Apple or Google? It’s Already Here originally appeared on Fool.com.
John Macris has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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