Silicon Valley is now home to America’s most valuable carmaker, with Tesla pulling ahead of Detroit-based General Motors in market capitalization.
The automotive and tech sectors have rapidly converged in recent years, both collaborating and competing, as software and energy technology become increasingly integral to moving vehicles. Tellingly, tech-rooted Tesla gained the largest market capitalization of any US carmaker when its share price rose 3.26% to a record high of $312.39 on April 11, 2017. This put the electric carmaker’s market value at $50.9 billion, exceeding GM’s by about $1 million. The difference is small, yet it indicates a larger shift in the industry.
One factor driving Tesla’s recent success – specifically in terms of its stock, which surged 35% over the past month – is investors’ belief that Chief Executive Elon Musk will revolutionize both the automotive and energy industries. Tesla is not yet profitable; however proponents say long-term growth expectations justify its stock price. They also take a favourable view of Tesla’s acquisition of SolarCity and its battery factory in Nevada, which is meant to lower manufacturing costs.
Of course, Tesla has its share of detractors. Sceptics say its growth targets are unrealistic and that it could yet be being overtaken by GM, Ford and other big American car manufacturers, which have electric vehicles of their own. The Palo Alto, California-based company is currently in a rush to launch its first-ever mass-market vehicle, the Model 3 sedan, in the second half of 2017, Reuters reports.
General Motors, founded in 1908, occupies a very different place in the century-old automotive industry. It stands alongside Ford and Chrysler as one of America’s iconic Detroit automakers. A proud history of endurance can be a double-edged sword, however, as it clashes with the need to be perceived as a technological innovator. GM’s stock has fallen nearly 20% since 2013, and it has scaled back overseas operations, pulling out of Russia, ending manufacturing in Australia, and most recently agreeing to sell its European division, Opel-Vauxhall, to French carmaker PSA.
It’s worth noting that GM has mounted an impressive recovery from the bankruptcy and bailout of eight years ago. So far this year, the company has outperformed the US market, with sales through March up nearly 1%, while the industry overall is down 1.5%. Under the leadership of CEO Mary Barra, GM is benefitting from cost-cutting measures and a steady stream of new models. Profits and revenue are rising, with GM’s pickups and SUVs setting records in the domestic market.
And yet, investors have yet to come around to the idea that times have changed for the nation’s largest automaker. Some analysts say the sticking point is growth, where Tesla is believed to have huge potential. “Tesla is viewed as a high-tech start-up driven by lots of stock speculation, while GM is an old-line industrial business with lots of institutional investors”, said Michelle Krebs, an analyst with the firm Autotrader.
GM is well aware of its image problem, and has been working feverishly to carve out a place for itself in automotive innovation, the New York Times notes, by “developing home-grown technology, acquiring or investing in Silicon Valley companies with promising approaches to self-driving or ride-hailing systems, and bringing a new electric car, the Chevrolet Bolt, to market.”
