Tesla Motors Inc (TSLA) Has a Moat, Which General Motors Company (GM) Does Not

Tesla Motors Inc (NASDAQ:TSLA) finds itself in a tight spot after failing to generate any profit even on spending big and unveiling two high-end electric cars. Concerns about its profit margins continue to evoke fears that it is incurring more costs on batteries, compared to the likes of General Motors Company (NYSE:GM).

Bears have always insisted that the automaker will struggle to make affordable cars for mass market on a cell pack that costs $260. Many also believed that General Motors Company (NYSE:GM) would have an edge over Tesla given that it uses a cell pack that costs $216, has all but continued to affirm bears arguments.

A wave of wrong information has dealt Tesla’s sentiments on the street a big blow as more people continue to confuse cell cost for pack cost. Reports that battery costs are approaching tipping point have also made some investors wary of the EV giant prospects.

Unwarranted Concerns

Short seller’s arguments that Tesla incurs more battery costs on every car manufactured may after all not be true. The company’s spokesperson has already acknowledged that kWh costs could be relatively cheaper than what analysts have been predicting all along.

Assumptions so far on battery pack costs have been way off the mark having emerged that a single pack may cost way below $190. According to industry experts, Tesla may have an edge over GM when it comes to battery costs.

Tesla’s Edge on Battery Costs

Tesla’s investor relation head says the Model 3 will come with a battery that is smaller than 60kWh. Going for a 55kWh should give the car an edge against General Motor’s Nissan Leaf given the car’s partial aluminum body guarantees a much lower drag coefficient.

The use of Aluminum allows Tesla to lower the weight of its cars. Even though the material is relatively expensive compared to Steel, the automaker should be able to offset the increased costs with batteries it is using.

If for instance Tesla Motors Inc (NASDAQ:TSLA) decides to go with the 60kWh-$190 battery with a cost per mile of $53.02, battery cost should total $11,400 for a $215-mile range. This should allow it to spend $23,600 on the base of the car, which ultimately brings the total cost of the car to $35,000.

The cost should be much less with a 55kWh battery that comes with a cost per mile of $48.60. Going for a 50kWh battery with a cost per mile of $40.69 could see Tesla battery costs per car totaling just $8,750.

General Motors Company (NYSE:GM), which Tesla short sellers believe has an edge, will be paying $12,900 as battery costs on a 60kWh pack if the bolt ends with a 215 miles range. Bears may have to rethink their position in the stock on the EV giant securing a better deal for batteries from Panasonic.

Bottom Line

Tesla Motors Inc (NASDAQ:TSLA) as it stands has a competitive edge against General Motors when it comes to electric cars. Given that, it can get the most range out of batteries while using cheaper batteries, all but affirms the fact that it will be able to produce affordable cars going forward.

The total range that an electric car can cover between recharges and cost are the two factors that buyers look at, when analyzing which model to go with. Given that the automaker has proved to have an edge on these two factors, it should be able to shrug off any competition threat, more so from General Motors Company (NYSE:GM)’s Bolt

Tesla Motors Inc (NASDAQ:TSLA) also boasts of a massive supercharging network across the United States that further affirms its edge in the EV business.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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