The Competition For Electric Vehicle Dominance

Key Takeaways

• Tesla currently dominates the EV market, but if GM can jumpstart EV sales, analysts say it’s poised to take over by the end of the decade.
• Despite being a company dedicated to EVs, Tesla scores poorly on ESG (environmental, social, and governance) metrics while GM tops the list for auto manufacturers.
• GM has the ability to scale without price gouging, qualities that build trust among consumers, but Tesla does not currently display.

There’s no question about it — Tesla dominates the electric vehicle (EV) market. But can Tesla hold onto its commanding share of the market? Or will it lose footing to the 100-year-old auto giant– GM?

On paper, GM is better positioned to scale, attract ESG-oriented investors, and list vehicles at a price point American consumers can actually afford. So what are they waiting for?

Market share

Right now, far less than 10% of auto sales are EVs. In 2021, President Biden set a national goal to get EVs up above 50% of total sales by 2030. While many auto executives thought this was an achievable goal, industry analysts remain less optimistic. Regardless, this is an industry that’s going to grow substantially over the next eight years.

Currently, Tesla has 66% of the market share in EVs, while GM only claims a paltry 6%, lagging behind both Ford and Volkswagen.

However, that’s projected to change. By 2030, LMC Automotive estimates GM will outshine every other EV manufacturer with 18.3% of the market share, leaving Tesla in the dust with only 11.2%, followed by Volkswagen and Ford.

Why? GM has the advantage of scale over Tesla. And over other big auto companies, they have an established platform, rather than modifying gas-guzzling vehicles into EVs with a battery slapped on. GM has been developing a platform called Ultium, which centers the systems of EVs, and places the batteries directly into the vehicle frame.

Now that they have a system in place, production is expected to ramp up quickly and more smoothly than it has in the past. Tesla does not have the same capacity to make vehicles at this scale, lacking the preexisting manufacturing infrastructure, despite the fact that they make only EVs.

Company Financials

Tesla is hands down the more profitable company at this moment. In Q2 of 2022, its net profit was $2.3 billion, up 98% year over year. GM’s net profit during the same period was only $1.7 billion, down 40.3% year over year.

This might seem confusing because GM has more established systems in place, they sold 578,639 vehicles in Q2 2022 versus Tesla’s 254,695 deliveries. (Deliveries are the closest equivalent metric to sales that Tesla releases.)

So why was Tesla so much more profitable? There are lots of factors, one being that Tesla spends nothing on marketing—cutting out a huge expense. It has also raised prices on its vehicles in recent years.

But another large contributor to Tesla’s current profitability is regulatory credits.

Tesla’s regulatory credits will face diminishing demand

In California and 13 other states, auto makers are required to make a certain percentage of their sales in EVs. When they don’t, they have to purchase regulatory credits from other automakers who have a surplus of credits.

Because Tesla deals exclusively in EVs, it has a stockpile of regulatory credits, which it then sells to other auto manufacturers – like GM.

Let’s take a look at just how impactful these credits are to Tesla’s bottom line. In 2020, Tesla’s net income was $862 million, while other auto manufacturers paid Tesla $1.58 billion for regulatory credits over the same time period, which means Tesla would have had a negative net income without them.

In 2021, Tesla’s net income for the year was $5.64 billion, including $1.47 billion in regulatory credits sold. These credits didn’t make up as large a portion of profits in 2021 as they did in 2020, but 26% of net profits is still significant.

As other automakers like GM scale up EV production, they won’t have as large a need to purchase these credits from Tesla anymore, simultaneously increasing GM’s bottom line and lowering Tesla’s.

Impacts of the Inflation Reduction Act

The Inflation Reduction Act revises the $7,500 non-refundable tax credit for consumers if they buy the right type of EV. The biggest change is that at least 40% of the raw materials used in the battery must be sourced from North America, and the vehicle itself must be made in North America. The 40% requirement goes up incrementally to 80% by 2027.

If the battery percentage requirement isn’t met, consumers will only be eligible for a $3,750 credit.

GM, Tesla, and most EV manufacturers source a majority of these materials outside of North America, with the largest markets being in Asia, but there are also some in Africa, Europe, Australia, and South America. That means most EVs will only qualify for the $3,750 credit – especially as the required percentages rise in the coming years.

Another key feature of the tax credit is that it is only available to individuals with an income of $150,000 or less (that limit jumps to $300,000 or less for couples). It’s also only valid for cars that cost $55,000 or less and trucks that cost $80,000 or less.

The idea is to incentivize automakers to produce affordable vehicles for everyday Americans, rather than maintaining the status quo of EVs as luxury items.

This shifts whom auto manufacturers can market this credit to, as EVs currently trend on the expensive side. When we hold the two companies up next to each other, GM has been lowering the prices of its EVs as of late while Tesla has been raising them.

The Chevy Bolt is currently priced at $26,595. Tesla’s one and only model that would currently qualify for this tax credit is the bare-bones Model 3 with rear wheel drive, which is currently priced at $46,990. This pricing difference isn’t just important for the tax credit – it’s important because of the income levels the tax credit targets.

The $20,000 in price difference means more Americans could gravitate towards GM’s product over Tesla’s.

Plus, GM will be releasing the first Silverado EV in Fall 2023. Its estimated list price starts at $39,900 – well under the $80,000 cap for EV trucks.

The good news for manufacturers is that there used to be a 200,000-vehicle cap on this credit, which has now been removed. This allows as many consumers as possible to claim the tax credit as long as they fall within the income limits.

ESG Outlook

As ESG (environmental, social, governance) investing becomes increasingly popular, GM has better appeal to investors.

This might be surprising, as you’d assume the “environmental” component in ESG would be more than enough to put Tesla at the top of the list. But in May 2022, the company was kicked out of the S&P 500 ESG index.

There were several factors that played into this. First, while Tesla does manufacture electric vehicles and profit off of green energy production, it actually has no plan to make the company carbon-neutral.

It has violated the EPA’s Clean Air Act for years, settling with the agency in February 2022. The company is being investigated by the state of California for its handling of waste as well.

On the social and governance side of things, Tesla has been through a few lawsuits lately that demonstrated racial discrimination in the workplace, and Elon Musk himself has gotten in trouble with the National Labor Relations Board over his anti-union stances and unfair labor practices.

GM, on the other hand, not only plans to be carbon-neutral by 2040, but is also asking its suppliers to make the same pledge. It’s actively investing in expanding its line of EV vehicles as well, though at this moment the investment is quite small.

GM also has extremely strong metrics on the governance side of the equation. Headed by CEO Mary Barra, half of the GM company board seats are occupied by women. By contrast, only two of Tesla’s board members – or 29% – are women.

GM also has an anonymous whistleblowing system set up for employees so they can report misconduct without having to worry about retaliation.

In the world of EVs in particular, ESG investors could hold a large sway over stock prices and company policies. Based on the way the companies are run today, GM would definitely come out on top when weighing these ESG values.

Tesla vs. GM: GM may have a brighter future

You would think a company dedicated entirely to EVs would have a brighter future in the EV market, but all signs indicate that GM is poised to take over the market within the decade if it can design cars that excite consumers and lift its EV sales.

Because of the company’s ability to scale, lack of reliance on regulatory credits, strong ESG standards, and willingness to price its vehicles at a more affordable level for everyday Americans, GM could be the new market leader by 2030.

At present, Tesla is the more exciting brand, with a very public figure at the helm to push innovation and attract top talent.

If you want to invest in green technology like EVs without investing in a singular product or company, consider Q.ai’s Clean Tech Investment Kit. Guided by AI, these kits help keep an eye on companies’ financials, stock prices, and sentiment. This allows you to invest in companies that fight climate change without lifting a finger.