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General Motors Company (GM)’s Advantage

General Motors (GM)So far, General Motors Company (NYSE:GM)‘ electric car strategy has not lived up to expectations. The company introduced the Chevy Volt in late 2010 to great fanfare. The Volt was meant to be a demonstration that the Detroit automakers could still be innovation leaders in the industry. As my colleague John Rosevear recently observed, the Volt got good ratings from auto reviewers, and customers are very happy with the car.

The Chevy Volt. Source: General Motors.

None of this has helped sales. The Volt missed sales goals by a wide margin in 2011 and 2012. So far, 2013 isn’t shaping up to be any better. Electric-car start-up Tesla Motors Inc (NASDAQ:TSLA) just began delivering its Model S sedan in volume last fall, but the Model S still managed to outsell the Volt last quarter — despite being far more expensive.

The Tesla Model S. Source: Tesla Motors.

However, help is on the way for General Motors Company (NYSE:GM), in the form of a car that isn’t even called “Volt.” At this year’s Detroit Auto Show, General Motors Company (NYSE:GM) unveiled the Cadillac ELR: a luxury coupe that builds on the Volt’s plug-in hybrid technology. The Cadillac ELR may have more success than the Volt, as it’s more likely to appeal to car buyers who would be willing to pay extra for a “green” car.

Electric means luxury
There’s good reason to believe that price/perception problems have been the Volt’s downfall. Even after tax credits, the base model costs more than $30,000 — far more than comparable gas-powered cars in the Chevy lineup, such as the Cruze. It also costs significantly more than Toyota Motor Corporation (ADR) (NYSE:TM)‘s very fuel-efficient Prius hybrid.

In other words, if price is a consideration, it’s hard to make a good “business case” for the Volt. Even if fuel efficiency is a high priority, moving from a hybrid to a plug-in hybrid like the Volt significantly adds to the cost, while providing a limited benefit. This logic has also weighed on sales of Toyota Motor Corporation (ADR) (NYSE:TM)’s Prius plug-in model.

On the other hand, if money is no object, you are probably not a likely customer for Chevrolet! By contrast, Tesla has successfully appealed to very wealthy individuals; the average selling price for its cars last quarter was nearly $100,000. The Model S offers a full luxury experience in a well-designed car and recently received the highest rating of any car from Consumer Reports. Tesla customers are willing to pay a handsome sum for this performance.

GM’s advantage
Tesla clearly has a great product on its hands with the Model S and is building a strong moat with its proprietary powertrain technology and Supercharger network. However, Tesla is not invincible. The biggest drawback of the Model S is that its range of 250-300 miles (with the largest battery pack) is insufficient for long trips. By contrast, the Cadillac ELR — like the Volt — runs on gasoline power after the electric charge is depleted, giving it unlimited range.

The Supercharger network is Tesla Motors Inc (NASDAQ:TSLA)’s response to “range-anxiety.” Tesla has nine Supercharger sites in California and the Northeast, with plans to expand to more than 100 stations by 2015. The Superchargers can provide up to 150 miles of range with a half-hour charge and are free to use for Tesla vehicle owners.

When fully built out, the Supercharger network will be a great asset for Tesla. That said, most drivers wouldn’t naturally make a half-hour pit stop every 100-150 miles. Moreover, even with 100 stations, Supercharger facilities will be far from ubiquitous. Some destinations will remain inaccessible.

Furthermore, if there’s traffic on the main highway, Tesla drivers will have to slog along, because that’s where the Supercharger station will be. Meanwhile, their friends who are still stuck with internal-combustion engines will be able to make a detour, since they can fill up anywhere!

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