GM - General Motors

[xazp]

I think the hand-wringing over SAAR misses the investment thesis on GM.  Whether or not the U.S. is near peak SAAR, China, India, Europe, S. AMerica are nowhere near peak SAAR.  Unless one thinks SAAR in the U.S. drops dramatically, the only thing that really matters is U.S. margins. 

 

10% U.S. margins + China growth + Europe profit ~ $5/share in earnings in 2016. 

 

Of these, I believe China and Europe are 'in the bag' so it's really whether they can hit their U.S. margin targets. 

 

But the larger issue is, why is it that GM can do $1/share of earnings and still be trading at $31/share?  The market obviously thinks even a P/E of 10 is "too expensive." 

 

 

Agree that we are getting to the top of the auto cycle. The best years were 2006/7 SAAR at 17.3 million. We are now hovering around 16.5 so not a lot of domestic upside from here. What about international though? China is already over 20 million SAAR and growing.

 

Exactly how I sized it up.  Not sure if that's a positive or not.  hah! 

 

I suppose the one thing to try and handicap is where we are in the automotive cycle, because the trailing multiple should, of course, be pretty low at the top of the cycle.

[ERICOPOLY]

 

Of course Tesla will outsell the Volt in Q4, but that's because Volt is launching a new version soon and they're clearing out the old model. 

 

 

I will bet that Tesla sells more model S next year than GM sells Volt.  Every single quarter.

 

[ERICOPOLY]

I will do a gentlemen's bet that GM sells more EVs and variants (Volts, Sonics, whatever Cadillac comes out with etc) than Tesla does in 2015, 2016, 2017, 2018, etc. 

 

The problem with Tesla is they're capacity constrained to one factory.

 

I bet that Tesla will be selling more pure EVs than GM does right now, next year, and the year after that  ;)

 

Any car that has a gasoline tank, I expect GM to sell more than Tesla which will sell zero.

[ERICOPOLY]

Eric - just want to make sure i'm following you...

 

$1.10 warrant premium + $1.20 dividend = $2.30

 

$2.30 / share price when you bought of ~$30 = 7.6% (roughly 8%)

 

so you are paying 8% for the warrant, which you describe as an $18.38 put.  the cost of leverage here is essentially 8%.

 

and then if i'm not mistaken, what you are saying is you bought X shares of common with cash, and Y shares of common on margin from IB (any color on the relationship between X/Y is appreciated).

 

you then bought $30 strike puts to protect your purchase of Y shares of common that were bought on margin.

 

the cost of your leverage on this position is essentially the cost of the put (put price / stock price) + the cost of the margin divided by the cost of the common, or  ((put price/stock price) + margin cost %) / stock price.

 

you then compare the cost of the 2 different leverage set ups, consider the downside protection (ie $18.38 put vs $30 put) and make a decision accordingly.

 

is that about right?

 

ty

 

There is an $18.33 "loan" synthetically embedded in the warrant.

 

The cost of that $18.33 is the $1.10 warrant premium in addition to the lost dividend of (at least) $1.20 annually.

 

$18.33 - $1.10 = $17.23

 

$17.23 grows to $18.33 at what annualized rate by 2019 expiry?  That's rate is the annualized cost of the warrant premium.  I get roughly 1.5% annually.

 

You take that annualized cost, and then you add the annualized cost of missing the $1.20 dividend.  So you add 6.5% ($1.20 divided by $18.33).

 

1.5% + 6.5% = 8%.

 

And for what?  What's so important about insuring that the stock won't be lower than $18.33 in 2019? 

 

I don't think worrying about $18.33 in 2019 is a realistic fear that worth paying 8% annually for.

 

More realistic is $30 by 2016.  It costs about 12% annually.  At least you are getting some real insurance for your buck.

 

However the cost of rolling that $30 put along will drop dramatically if the stock rises as expected by 2016, 2017, 2018.  So the blended average cost of that $30 put will likely be 8% or less.  But it's a $30 strike put, not an $18.33 strike.

 

I expect the interest rate on my margin loan to rise at some point (a knock on my strategy), but I expect the GM dividend to rise as well (a knock on the warrant).

 

[Homestead31]

ty eric.

 

my take away is that your focus is strongly on the downside rather than the upside - is that correct?

 

in other words i definitely understand your logic in terms of down side, but not as much on the upside.  in other words, if in 2016 the common trades at $50, the upside from the common at today's prices will be ~66%+ dividends, so call it 74%, while the upside on the warrants will be ~100%.

 

this is of course based on a 1:1 common:warrant analysis.

 

however, if i'm not mistaken you are leveraging your common via margin.  would you mind walking through the math there? ie if the stock is at $50 in 2016 your common bought with cash will be up ~74%... but your stock bought on margin will be up more... but how much more?  i'm not sure how much you margin or how much it costs to margin.

 

i appreciate your patience with this topic on this thread and the BAC one. 

[krazeenyc]

Eric - just want to make sure i'm following you...

 

$1.10 warrant premium + $1.20 dividend = $2.30

 

$2.30 / share price when you bought of ~$30 = 7.6% (roughly 8%)

 

so you are paying 8% for the warrant, which you describe as an $18.38 put.  the cost of leverage here is essentially 8%.

 

and then if i'm not mistaken, what you are saying is you bought X shares of common with cash, and Y shares of common on margin from IB (any color on the relationship between X/Y is appreciated).

 

you then bought $30 strike puts to protect your purchase of Y shares of common that were bought on margin.

 

the cost of your leverage on this position is essentially the cost of the put (put price / stock price) + the cost of the margin divided by the cost of the common, or  ((put price/stock price) + margin cost %) / stock price.

 

you then compare the cost of the 2 different leverage set ups, consider the downside protection (ie $18.38 put vs $30 put) and make a decision accordingly.

 

is that about right?

 

ty

 

There is an $18.33 "loan" synthetically embedded in the warrant.

 

The cost of that $18.33 is the $1.10 warrant premium in addition to the lost dividend of (at least) $1.20 annually.

 

$18.33 - $1.10 = $17.23

 

$17.23 grows to $18.33 at what annualized rate by 2019 expiry?  That's rate is the annualized cost of the warrant premium.  I get roughly 1.5% annually.

 

You take that annualized cost, and then you add the annualized cost of missing the $1.20 dividend.  So you add 6.5% ($1.20 divided by $18.33).

 

1.5% + 6.5% = 8%.

 

And for what?  What's so important about insuring that the stock won't be lower than $18.33 in 2019? 

 

I don't think worrying about $18.33 in 2019 is a realistic fear that worth paying 8% annually for.

 

More realistic is $30 by 2016.  It costs about 12% annually.  At least you are getting some real insurance for your buck.

 

However the cost of rolling that $30 put along will drop dramatically if the stock rises as expected by 2016, 2017, 2018.  So the blended average cost of that $30 put will likely be 8% or less.  But it's a $30 strike put, not an $18.33 strike.

 

I expect the interest rate on my margin loan to rise at some point (a knock on my strategy), but I expect the GM dividend to rise as well (a knock on the warrant).

 

Eric,

 

Are you buying the common in your roth? and selling the puts in a taxable account?

Also are you selling puts in other companies to cover the cost of the put? (If so, curious what companies you've picked)

 

Thanks.

[ERICOPOLY]

Eric - just want to make sure i'm following you...

 

$1.10 warrant premium + $1.20 dividend = $2.30

 

$2.30 / share price when you bought of ~$30 = 7.6% (roughly 8%)

 

so you are paying 8% for the warrant, which you describe as an $18.38 put.  the cost of leverage here is essentially 8%.

 

and then if i'm not mistaken, what you are saying is you bought X shares of common with cash, and Y shares of common on margin from IB (any color on the relationship between X/Y is appreciated).

 

you then bought $30 strike puts to protect your purchase of Y shares of common that were bought on margin.

 

the cost of your leverage on this position is essentially the cost of the put (put price / stock price) + the cost of the margin divided by the cost of the common, or  ((put price/stock price) + margin cost %) / stock price.

 

you then compare the cost of the 2 different leverage set ups, consider the downside protection (ie $18.38 put vs $30 put) and make a decision accordingly.

 

is that about right?

 

ty

 

There is an $18.33 "loan" synthetically embedded in the warrant.

 

The cost of that $18.33 is the $1.10 warrant premium in addition to the lost dividend of (at least) $1.20 annually.

 

$18.33 - $1.10 = $17.23

 

$17.23 grows to $18.33 at what annualized rate by 2019 expiry?  That's rate is the annualized cost of the warrant premium.  I get roughly 1.5% annually.

 

You take that annualized cost, and then you add the annualized cost of missing the $1.20 dividend.  So you add 6.5% ($1.20 divided by $18.33).

 

1.5% + 6.5% = 8%.

 

And for what?  What's so important about insuring that the stock won't be lower than $18.33 in 2019? 

 

I don't think worrying about $18.33 in 2019 is a realistic fear that worth paying 8% annually for.

 

More realistic is $30 by 2016.  It costs about 12% annually.  At least you are getting some real insurance for your buck.

 

However the cost of rolling that $30 put along will drop dramatically if the stock rises as expected by 2016, 2017, 2018.  So the blended average cost of that $30 put will likely be 8% or less.  But it's a $30 strike put, not an $18.33 strike.

 

I expect the interest rate on my margin loan to rise at some point (a knock on my strategy), but I expect the GM dividend to rise as well (a knock on the warrant).

 

Eric,

 

Are you buying the common in your roth? and selling the puts in a taxable account?

Also are you selling puts in other companies to cover the cost of the put? (If so, curious what companies you've picked)

 

Thanks.

 

No, this is strictly just buying the common on margin (portfolio margin) and hedging with the puts.  Not writing anything else to cover the cost of the premiums.

[ERICOPOLY]

ty eric.

 

my take away is that your focus is strongly on the downside rather than the upside - is that correct?

 

I wouldn't be using any leverage at all if that were the case.

 

But given that I am using leverage, I'm capping the maximum losses at something reasonable.

 

[ERICOPOLY]

in other words i definitely understand your logic in terms of down side, but not as much on the upside.  in other words, if in 2016 the common trades at $50, the upside from the common at today's prices will be ~66%+ dividends, so call it 74%, while the upside on the warrants will be ~100%.

 

this is of course based on a 1:1 common:warrant analysis.

 

however, if i'm not mistaken you are leveraging your common via margin.  would you mind walking through the math there? ie if the stock is at $50 in 2016 your common bought with cash will be up ~74%... but your stock bought on margin will be up more... but how much more?  i'm not sure how much you margin or how much it costs to margin.

 

i appreciate your patience with this topic on this thread and the BAC one.

 

 

The warrants are 13.89 at last tick and the common is 30.95.

 

So if you have 30.95 in cash, you can:

A)  buy one common share

or

B)  synthetically leverage into 2.23 shares of common via investing it all in the warrants

 

So the warrant gives you exposure to 2.23 shares of common stock upside. 

 

To to replicate the same upside as the warrant (but with a different strike put and a different cost of leverage), you could do the following:

 

step 1)  pay cash for the first share of common

step 2)  purchase 1.23 additional shares of common using margin. 

step 3)  hedge the 1.23 shares using puts

 

This way, you have 2.23 underlying shares of upside (same as the warrants) but you get to pick the strike price of the put that protects your margin loan.  And the costs are different.

 

[xazp]

I will take both bets!

 

GM pure EVs outsell Tesla EVs starting in 2016 or 2017 ...

and

GM Volt outsells Tesla-S, after the new Volt comes out (sometime next year). 

 

Who knows if we remember this bet.  But, my research suggests GM is second only to Tesla in EV technology.  Tesla's big advantage is battery costs.  The price differential of batteries will be small beginning in 2016, and minimal in 2017.  Not sure if you know, but GM is doing a $30,000, 200-mile EV in 2016.  I believe that will sell well enough at least in 2017 to exceed Tesla's car capacity.  Just my guess!

 

 

 

I will do a gentlemen's bet that GM sells more EVs and variants (Volts, Sonics, whatever Cadillac comes out with etc) than Tesla does in 2015, 2016, 2017, 2018, etc. 

 

The problem with Tesla is they're capacity constrained to one factory.

 

I bet that Tesla will be selling more pure EVs than GM does right now, next year, and the year after that  ;)

 

Any car that has a gasoline tank, I expect GM to sell more than Tesla which will sell zero.

[ERICOPOLY]

I will take both bets!

 

GM pure EVs outsell Tesla EVs starting in 2016 or 2017 ...

and

GM Volt outsells Tesla-S, after the new Volt comes out (sometime next year). 

 

 

To clarify, I said "now" "next year" "and the year after that"

 

So that does not include 2017.

 

[Mephistopheles]

in other words i definitely understand your logic in terms of down side, but not as much on the upside.  in other words, if in 2016 the common trades at $50, the upside from the common at today's prices will be ~66%+ dividends, so call it 74%, while the upside on the warrants will be ~100%.

 

this is of course based on a 1:1 common:warrant analysis.

 

however, if i'm not mistaken you are leveraging your common via margin.  would you mind walking through the math there? ie if the stock is at $50 in 2016 your common bought with cash will be up ~74%... but your stock bought on margin will be up more... but how much more?  i'm not sure how much you margin or how much it costs to margin.

 

i appreciate your patience with this topic on this thread and the BAC one.

 

 

The warrants are 13.89 at last tick and the common is 30.95.

 

So if you have 30.95 in cash, you can:

A)  buy one common share

or

B)  synthetically leverage into 2.23 shares of common via investing it all in the warrants

 

So the warrant gives you exposure to 2.23 shares of common stock upside. 

 

To to replicate the same upside as the warrant (but with a different strike put and a different cost of leverage), you could do the following:

 

step 1)  pay cash for the first share of common

step 2)  purchase 1.23 additional shares of common using margin. 

step 3)  hedge the 1.23 shares using puts

 

This way, you have 2.23 underlying shares of upside (same as the warrants) but you get to pick the strike price of the put that protects your margin loan.  And the costs are different.

 

If you are hedging with puts, that adds to the cost no? So you're buying a share and borrowing to buy 1.23 more. In order to hedge the 1.23, you'd also have to buy 1.23 puts, so you need to put up additional capital on top of the 30.95 for this insurance (or borrow more on margin to buy the put). What am I getting wrong?

[Liberty]

Who knows if we remember this bet.  But, my research suggests GM is second only to Tesla in EV technology.  Tesla's big advantage is battery costs.  The price differential of batteries will be small beginning in 2016, and minimal in 2017.  Not sure if you know, but GM is doing a $30,000, 200-mile EV in 2016.  I believe that will sell well enough at least in 2017 to exceed Tesla's car capacity.  Just my guess!

 

This reminds me a lot of what I see happening with Apple vs. Android. People look at spec lists rather than at how good the overall products are, and what the experience is for customers.

 

If volume is the only thing you care about (as opposed to profits per EV), GM has a big advantage because they sell at much lower price points than Tesla at the moment, so more people can afford them. The Model 3 will help, but that's only in a few years.

 

But GM has a huge handicap too: To properly sell EVs, they would have to explain to customers the disadvantages of their others products and properly incentivize dealers to do so (but dealers make most of their money on maintenance of non-EVs), which they won't really do.

 

They would also need to make their most attractive models be EVs, rather than just 'ok' models. The Spark EV reminds me of the Nissan LEAF, except worse. Rather than take one of your best-selling models with the most mass-appeal and try to make it electric and as good as possible (a top fof the line electric Altima or Malibu), they do something that they think won't cannibalize their other sales too much but will still be good enough for those who really want EVs. It's half-hearted. They're pulling their punches.

 

Tesla is aiming squarely at the mainstream, not just EV lovers. They want to make the best cars, period.

[ERICOPOLY]

in other words i definitely understand your logic in terms of down side, but not as much on the upside.  in other words, if in 2016 the common trades at $50, the upside from the common at today's prices will be ~66%+ dividends, so call it 74%, while the upside on the warrants will be ~100%.

 

this is of course based on a 1:1 common:warrant analysis.

 

however, if i'm not mistaken you are leveraging your common via margin.  would you mind walking through the math there? ie if the stock is at $50 in 2016 your common bought with cash will be up ~74%... but your stock bought on margin will be up more... but how much more?  i'm not sure how much you margin or how much it costs to margin.

 

i appreciate your patience with this topic on this thread and the BAC one.

 

 

The warrants are 13.89 at last tick and the common is 30.95.

 

So if you have 30.95 in cash, you can:

A)  buy one common share

or

B)  synthetically leverage into 2.23 shares of common via investing it all in the warrants

 

So the warrant gives you exposure to 2.23 shares of common stock upside. 

 

To to replicate the same upside as the warrant (but with a different strike put and a different cost of leverage), you could do the following:

 

step 1)  pay cash for the first share of common

step 2)  purchase 1.23 additional shares of common using margin. 

step 3)  hedge the 1.23 shares using puts

 

This way, you have 2.23 underlying shares of upside (same as the warrants) but you get to pick the strike price of the put that protects your margin loan.  And the costs are different.

 

If you are hedging with puts, that adds to the cost no? So you're buying a share and borrowing to buy 1.23 more. In order to hedge the 1.23, you'd also have to buy 1.23 puts, so you need to put up additional capital on top of the 30.95 for this insurance (or borrow more on margin to buy the put). What am I getting wrong?

 

You have it correct, but it's pretty minor.  Rough math, it puts me off by about 10% of the margin rate.

 

So if your margin rate is 60 bps, you add 6 bps to account for it.  Or if your margin rate is 100 bps, you add 10 bps to account for it.

 

Well, I suppose you could argue that the loan itself used to finance the put is unhedged.  So in order to buy yet more puts to hedge that, it really raises the entire cost of everything by 10%.  So instead of 12% cost of leverage, it becomes 13.2%.  I'm just doing mental math, not with a calculator.

 

EDIT:  Actually, I was up late last night and I'll need more time to think about it.  Specifically, all non-recourse loans have interest that needs to be paid (presumably out of more borrowed money or other cash-flow).  Whereas in this case the interest is pre-paid upfront.  So fully hedging the money used to buy the puts could work as long as you unhedge it steadily at the pace that interest would be accruing on an ordinary loan.  In which case it wouldn't cost as much as 13.2% -- it would be somewhere in between that and the original estimate of 12%.

[xazp]

Absolutely.  Tesla will make more per car, but, GM will sell more cars.  I was really just trying to make the point that Tesla gets all the attention, but, GM will have pure EV sales too - quite possibly in excess of Tesla's. 

 

I'm going to digress a little bit, but it's a topic that interests me as I've been looking into GM. 

 

My view is that Tesla's really big innovation was to find a way to get battery costs way down.  I think in 2012 they were probably 1/3rd of anyone else.  So they could build a great car like the model S which can go 200+ miles, and no one else could copy them, because at 3x the battery costs per kWh, it was just not financially feasible. 

 

Nissan built the Leaf, but, because their battery costs were 3x, they basically just put in 1/3rd the battery.  So you get a leaf that goes, roughly, 1/3 the distance of the Tesla. 

 

GM's idea - which I like, but is widely panned - was the Volt.  So, they put in an even smaller battery - 30 miles, plus a gas range extender.  The idea here is many people drive 30 miles or less per day, so, most of the time it's acting like an EV.  But the range extender meant you could drive 300 miles if necessary.  You get the best of both worlds here.  But, it's been a poor seller.  And the reason (I think) is due to poor interior quality, having four seats, etc.  But the engineering of the actual power train and battery and engine - I think they make a lot of sense. 

 

Fast forward to 2015. 

I believe the new Volt will do something like 50 miles on the battery and another 300 on gas.  More importantly, it will have 5 seats and they'll improve the quality of the interior dramatically.  Since I believe the Volt is fundamentally a good design where the flubbed the interior details, I am hoping it will sell well. 

 

In 2016, I believe battery costs per kWh will shrink dramatically.  So, 2016 is the first time you will see legitimate competition for Tesla.  You'll see 200-mile cars for $30,000.  And you'll see (this is just speculation on my part) something from Cadillac that is a lot like the Model S, but less expensive.

 

I don't agree with you that GM is playing half-assed with EVs.  I think it is driven by battery prices, and it won't be until 2016 or 2017 that GM or anyone can really compete head-to-head with Tesla.  This is quite similar to how Apple had a multiple-year lead on Android, but today, the delta is pretty small.  Where the analogy falls apart is, I don't believe Tesla (with one factory and not the financial resources of a big company) can do the volumes of GM.  So Tesla by necessity will be a niche player, and someone else will take the profits.  My view is that GM's EV technology is superior to everyone but Tesla, so, I think GM is a candidate for being the "Samsung" to Tesla's "Apple." 

 

Anyway, I could go on and on about this :).  I'm now more interested in GM than BAC.  Never been a car guy in my life, but, I've read a lot of car stuff and really believe that GM's engineering has gotten vastly better than before.  Like ... I'm going to buy a hybrid CT-6 if this crappy stock gets to $42+. 

 

 

 

 

 

 

 

Who knows if we remember this bet.  But, my research suggests GM is second only to Tesla in EV technology.  Tesla's big advantage is battery costs.  The price differential of batteries will be small beginning in 2016, and minimal in 2017.  Not sure if you know, but GM is doing a $30,000, 200-mile EV in 2016.  I believe that will sell well enough at least in 2017 to exceed Tesla's car capacity.  Just my guess!

 

This reminds me a lot of what I see happening with Apple vs. Android. People look at spec lists rather than at how good the overall products are, and what the experience is for customers.

 

If volume is the only thing you care about (as opposed to profits per EV), GM has a big advantage because they sell at much lower price points than Tesla at the moment, so more people can afford them. The Model 3 will help, but that's only in a few years.

 

But GM has a huge handicap too: To properly sell EVs, they would have to explain to customers the disadvantages of their others products and properly incentivize dealers to do so (but dealers make most of their money on maintenance of non-EVs), which they won't really do.

 

They would also need to make their most attractive models be EVs, rather than just 'ok' models. The Spark EV reminds me of the Nissan LEAF, except worse. Rather than take one of your best-selling models with the most mass-appeal and try to make it electric and as good as possible (a top fof the line electric Altima or Malibu), they do something that they think won't cannibalize their other sales too much but will still be good enough for those who really want EVs. It's half-hearted. They're pulling their punches.

 

Tesla is aiming squarely at the mainstream, not just EV lovers. They want to make the best cars, period.

[CorpRaider]

 

Anyway, I could go on and on about this :).  I'm now more interested in GM than BAC.  Never been a car guy in my life, but, I've read a lot of car stuff and really believe that GM's engineering has gotten vastly better than before.  Like ... I'm going to buy a hybrid CT-6 if this crappy stock gets to $42+. 

 

 

Haha!  I like it. 

[Picasso]

I disagree that you get the best of both worlds with the Volt.  It actually highlights the limitations of electric and gas by compromising on both. 

 

It fits a certain niche but the goal of Tesla is to get companies like GM to focus on pure EV.  The more success Tesla has in this regard, the more GM will be backing away from products like the Volt.

[xazp]

When the Volt was released, there was no way to make a 200-mile EV without using Tesla's batteries, at any reasonable price.  Within the constraints that GM had at the time, I think it was an excellent compromise to get a mostly-EV car that also had range.  Here's actual Volt stats:  http://www.voltstats.net/  There are people who have driven nearly 70,000 miles on their batteries. 

 

With battery costs coming down in 2016 or 2017, they don't need to make compromises, they can simply make a 200-mile EV from scratch for $30,000. 

 

Fundamentally, I view Tesla's "monopoly" on EV's being related to battery costs.  As such, I think it only lasts until about 2016 or 2017.  I think Tesla's engineering is darned good, but, GM has recently proven itself at "borrowing" ideas from competitors and coming out with equally good cars.  I don't say that GM can beat Tesla, but, GM should have a cost and scaling advantage on Tesla in the long run. 

 

Alternately, I think that Tesla could merge with GM, and then Tesla could use Cadillac's manufacturing and dealers to scale up sales.  They sort of have complimentary strengths. 

 

 

 

I disagree that you get the best of both worlds with the Volt.  It actually highlights the limitations of electric and gas by compromising on both. 

 

It fits a certain niche but the goal of Tesla is to get companies like GM to focus on pure EV.  The more success Tesla has in this regard, the more GM will be backing away from products like the Volt.

[ERICOPOLY]

 

Anyway, I could go on and on about this :).  I'm now more interested in GM than BAC.  Never been a car guy in my life, but, I've read a lot of car stuff and really believe that GM's engineering has gotten vastly better than before.  Like ... I'm going to buy a hybrid CT-6 if this crappy stock gets to $42+. 

 

 

I'll probably go with the Tesla "D" if this crappy stock gets to $42+.

 

We can drive our new cars head-on into each other and see who gets out and walks away from it  :D

[Picasso]

When the Volt was released, there was no way to make a 200-mile EV without using Tesla's batteries, at any reasonable price.  Within the constraints that GM had at the time, I think it was an excellent compromise to get a mostly-EV car that also had range.  Here's actual Volt stats:  http://www.voltstats.net/  There are people who have driven nearly 70,000 miles on their batteries. 

 

With battery costs coming down in 2016 or 2017, they don't need to make compromises, they can simply make a 200-mile EV from scratch for $30,000. 

 

Fundamentally, I view Tesla's "monopoly" on EV's being related to battery costs.  As such, I think it only lasts until about 2016 or 2017.  I think Tesla's engineering is darned good, but, GM has recently proven itself at "borrowing" ideas from competitors and coming out with equally good cars.  I don't say that GM can beat Tesla, but, GM should have a cost and scaling advantage on Tesla in the long run. 

 

Alternately, I think that Tesla could merge with GM, and then Tesla could use Cadillac's manufacturing and dealers to scale up sales.  They sort of have complimentary strengths. 

 

 

 

I disagree that you get the best of both worlds with the Volt.  It actually highlights the limitations of electric and gas by compromising on both. 

 

It fits a certain niche but the goal of Tesla is to get companies like GM to focus on pure EV.  The more success Tesla has in this regard, the more GM will be backing away from products like the Volt.

 

Tesla would never merge with GM.  GM destroyed the electric car many years ago.  Why would Musk let his baby in the hands of convicted murderers?  Maybe Tesla gets big enough to buy GM since their enterprise value is almost the market cap of Tesla.  That would be funny to watch unfold.

 

Tesla sources the batteries from Panasonic.  If GM wanted to make an electric car, assuming it was so easy, they would have done it.  The fact is a good electric car is best designed with a blank sheet of paper.  There are little if any compromises that Tesla have made in designing the Model S.  Given they focus on cash flow and not EPS, they are willing to not focus on profits until it forces the competition to do the same. 

 

There is a lot more to Tesla's "monopoly" than just the batteries.  Not to say the Volt isn't okay for what it is. 

[xazp]

OK then I'm getting an Escalade :).

 

I'm actually not a car guy.  I don't even like driving.  But since I've gotten involved in GM I read the auto blogs to get a sense of the quality of GM's and competitor cars. 

 

I'm finding GM annoying, like BAC it seems stuck at a low P/E.  What good is $5/share in earnings if the market only says a P/E of 6? 

 

I think they can raise their dividend and maybe that will drive valuations higher. 

 

 

Anyway, I could go on and on about this :).  I'm now more interested in GM than BAC.  Never been a car guy in my life, but, I've read a lot of car stuff and really believe that GM's engineering has gotten vastly better than before.  Like ... I'm going to buy a hybrid CT-6 if this crappy stock gets to $42+. 

 

 

I'll probably go with the Tesla "D" if this crappy stock gets to $42+.

 

We can drive our new cars head-on into each other and see who gets out and walks away from it  :D

[xazp]

I know  Tesla and GM would never merge.  Neither side would enjoy that. 

 

What Tesla figured out was how to efficiently put a lot of cheap, commodity batteries together - cheaply.  They took something like 8,000 commodity batteries.  Now traditionally you'd need some dude to solder in 8,000 little points into the car, which would blow the costs out of the water.  But Tesla figured out how to efficiently solder them together, then to cover them with a fire-resistant goop, and then patented their techniques.  It's the "putting them together" that GM doesn't know how to do (obviously they know how to buy batteries).  Tesla did it very cleverly, and GM never even had the imagination to do it.  Tesla was really clever and smart here.  So while a custom-built car battery might be $600/kWh (for GM), Tesla's cost $140/kWh + $60/kWh to combine them together.  Until Tesla released their patents earlier this year, it wasn't in the cards for GM to copy Tesla's strategy. 

 

And likely, GM never will.  Because eventually, custom-designed car batteries will get to a scale where they are at similar prices to Tesla, but more specifically designed for a car.  I view Tesla's strategy as very good in the short-term, but eventually I think Tesla and GM will use similar battery technologies. 

 

I view Tesla's primary "moat" being putting together commodity parts into a cheap car battery.  I think they've done other smart things with design, but, once you level the battery playing field, I don't think their engineering moat is very wide.  I do however believe the brand is very good, they've got Tesla charging stations, etc - that's where I think their long term moat resides.

 

 

 

 

When the Volt was released, there was no way to make a 200-mile EV without using Tesla's batteries, at any reasonable price.  Within the constraints that GM had at the time, I think it was an excellent compromise to get a mostly-EV car that also had range.  Here's actual Volt stats:  http://www.voltstats.net/  There are people who have driven nearly 70,000 miles on their batteries. 

 

With battery costs coming down in 2016 or 2017, they don't need to make compromises, they can simply make a 200-mile EV from scratch for $30,000. 

 

Fundamentally, I view Tesla's "monopoly" on EV's being related to battery costs.  As such, I think it only lasts until about 2016 or 2017.  I think Tesla's engineering is darned good, but, GM has recently proven itself at "borrowing" ideas from competitors and coming out with equally good cars.  I don't say that GM can beat Tesla, but, GM should have a cost and scaling advantage on Tesla in the long run. 

 

Alternately, I think that Tesla could merge with GM, and then Tesla could use Cadillac's manufacturing and dealers to scale up sales.  They sort of have complimentary strengths. 

 

 

 

I disagree that you get the best of both worlds with the Volt.  It actually highlights the limitations of electric and gas by compromising on both. 

 

It fits a certain niche but the goal of Tesla is to get companies like GM to focus on pure EV.  The more success Tesla has in this regard, the more GM will be backing away from products like the Volt.

 

Tesla would never merge with GM.  GM destroyed the electric car many years ago.  Why would Musk let his baby in the hands of convicted murderers?  Maybe Tesla gets big enough to buy GM since their enterprise value is almost the market cap of Tesla.  That would be funny to watch unfold.

 

Tesla sources the batteries from Panasonic.  If GM wanted to make an electric car, assuming it was so easy, they would have done it.  The fact is a good electric car is best designed with a blank sheet of paper.  There are little if any compromises that Tesla have made in designing the Model S.  Given they focus on cash flow and not EPS, they are willing to not focus on profits until it forces the competition to do the same. 

 

There is a lot more to Tesla's "monopoly" than just the batteries.  Not to say the Volt isn't okay for what it is.

[intothebreach]

So Tesla by necessity will be a niche player, and someone else will take the profits.  My view is that GM's EV technology is superior to everyone but Tesla, so, I think GM is a candidate for being the "Samsung" to Tesla's "Apple." 

 

This is an interesting conversation and the different view points are actually building a better overall story. No position yet, but looking more into this one (and for the record, I'd love for you guys to make the bet : )

 

Just want to extend the above analogy a little: There is really only 3 comfortable competitive positions in any competitive market: the premium which requires a superior product capable of commanding a premium pricing, the lowest-cost provider which can also be extremely profitable provided you are cost-advantaged, and being able to connect and serve a given niche market better than anybody else.

 

Tesla currently occupies the premium spot for EV, and may also be developing a cost advantage tied to batteries provided they can produce enough vehicles to offset their fixed costs.

 

I don't see GM as being built to service niche markets, and if that assumption is valid, will the new GM be able to establish itself as the lowest cost provider? Otherwise, it risks ending up precisely in the uncomfortable "stuck-in-the-middle" spot where Samsung seems to be headed: having its very profitable business eaten away by cheaper providers while not quite being able to command premium pricing? In theory it should, but if past is prologue, then the road ahead may be difficult...

[MYDemaray]

I'm finding GM annoying, like BAC it seems stuck at a low P/E.  What good is $5/share in earnings if the market only says a P/E of 6? 

 

Any thoughts on Leon Cooperman's off-the-cuff remarks about GM being a cyclical and the market "getting it"...i.e., trades at low valuations at cyclical peaks and high valuation at troughs? I think that is the variant perception here...the belief that even though we're selling lots of cars, the cyclical peak is a few years down the road, not tomorrow. That, and GM's new cost structure -- this time, it really is different.

[Picasso]

They figured out a lot more than just putting together a bunch of batteries.  Maybe when I have some extra time I can list them for you. 

 

I would caution against Tesla/GM takeaways from online blogs you have read on the issue.  I find most of them have no idea what they are talking about.