Is Tesla Winning the US Automotive Race?

For more than a century, the automotive industry has been a major part of the American economy, with its two main players; General Motors (GM) and Ford Motor Company controlling the market. However, this cornerstone of the American economy could be at the dawn of a new era, with electric carmaker Tesla surpassing Ford and solidifying itself as the second-biggest automaker in the US by market cap.

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Founded in 2003 by serial entrepreneur and innovator Elon Musk, Tesla is an infant in comparison. Providing high-end electric cars in much smaller quantities than its rivals in America, the company has managed to solidify itself as the future of the industry in many investors’ and consumers’ eyes, causing the TSLA stock to rise, reaching a market cap higher than Ford’s and almost as high as GM’s.

While still considered market leaders, GM and Ford are at a crossroads of sorts, with more questions than answers about their futures. The two companies are still licking their wounds from the crisis the industry suffered less than a decade ago. Despite becoming much more effective since, the two are still caught between traditional ways of doing business and the adaptations needed for the future of the car industry. Ford has more reason for concern, since Ford’s stock price has returned to it lowest level in five years, while the GM stock displays more stability.

TSLA vs. F stock price, April 13th, 2017 | Source: eToro

Bigger isn’t always better

Both GM and Ford have registered significant profits in recent years, supplying millions of cars to drivers around the world – so how is it that Tesla, which lost some $675 million in 2016 is ahead in the race? The answer has more to do with where the industry is headed, rather than where it is today. Those who invest in Tesla and hold a major share, are in it for the long haul, as they look to the future.

Despite many advancements and innovations made in the automotive industry over the years, its basic product remained the same: an automobile that uses fossil-fuels and is driven by a person. However, all that is about to change. With tech giants Apple and Google both working on self-driving cars, and alternative energy sources becoming increasingly popular, the industry could be completely transformed in coming years. Despite both GM and Ford preparing for the transition, it is the much smaller, innovation-focused Tesla, which is more adaptable and could beat its massive, sluggish counterparts in this race.

Will Tesla reach the checkered flag first?

In the 1992 movie Sneakers, Ben Kingsley’s character Cosmo says: “everything in this world, including money, operates not on reality – but the perception of reality.” This is very much the case in this three-car race. Tesla’s market cap obviously does not reflect its current standing against Ford and GM, but rather it shows where investors believe it is headed. However, there are markers to support this sentiment: unlike its peers, Tesla sells virtually every car it makes and while GM and Ford have an inventory of unsold cars, Tesla has pre-paid reservations for hundreds of thousands of cars that have not yet been delivered.

And yet, it would be premature to believe that Tesla is the clear winner here. True, it is leaner, faster and more innovative, but its century-old rivals know a thing or two about staying in the business. Also, there’s one fact that eludes some people: GM already produced and sold an electric car in 1996. True, the GM EV1 was killed after three years, but it is a testimony to the fact that America’s biggest automaker knew how to manufacture and deliver an electric car even before Elon Musk founded PayPal.

With a true innovator in Musk at its helm and an impressive market cap, Tesla is no-doubt an interesting long-term investment option. However, it is not alone in this race, and if Ford and GM manage to make the perfect shift, they could still be considered winners in years to come.