The business world is abuzz with the news: as of this writing, Tesla’s total value has soared past that of Ford and is heading towards the market’s valuation of General Motors. A lot of people are pretending to be very surprised about this; after all, Tesla is a money-losing small-batch builder of impractical and occasionally trouble-prone boutique Veblen goods, while Ford is a massive, highly competent, and frequently profitable automaker with enough factory-floor space to swallow Tesla many times over.
The above does not matter. Ford is a much better carmaker than Tesla, but we live in an era where brick-and-mortar companies frequently play second fiddle to apps and platforms and clouds and other entirely ephemeral ideas. It suits the stock market just fine, because the stock market is much like the baseball-card market, or the art market, in that it serves more as a reflection of prevailing views than as any truly prescient or even intelligent verdict regarding a company’s merit. It’s an illusion. Of course, it is an illusion with the power to build fortunes and destroy lives in a millisecond.
In this case, the illusion also presents Tesla with the power to save itself. Although I have been, and continue to be, bullish on Elon Musk’s prospects, I’m often told by more sober and successful men that Tesla is not built on sound business principles. That you can’t survive forever building low-volume, no-profit cars that require leading-edge, high-buck R&D. They tell me that Tesla doesn’t really know how to build cars, and they certainly don’t know how to build cars in volume. They are just a little company with a better idea.
That phrase–little company with a better idea–could also be used to describe the American Bantam firm, the original winner of the quarter-ton truck project that became the “Jeep” during World War II. The government liked American Bantam’s design best of all, but they ended up giving Willys Overland the rights to build it because American Bantam was too small to deliver the required volume. In the end, Willys couldn’t build enough of them, and Ford got involved. That’s a hugely oversimplified description of events, so please hold your angry comments, but it provides the gist of the situation.
Right now, Tesla knows how to build electric cars that people want. They have brand value and they have momentum. What they do not have is enough production capacity, and enough manpower, to deliver electric cars to Joe Average out there. As it so happens, there does happen to be a company with those those things: General Motors. As they have shown with the Volt, GM is pretty good at delivering large quantities of electric-capable vehicles. They have all the spare production capacity in the world and they have a lot of scary-good engineers on the payroll.
What GM does not have: untainted brand perception, charismatic leadership, or customer goodwill. The Volt suffers from its association with Chevrolet and GM. If the only place to buy a Volt was the Apple Store, every celebrity in the world would have five of them and the waiting list would stretch into the next decade. Unfortunately, it’s actually sold with the same name and badge that graced the Citation and the Celebrity Eurosport, so nobody seems to care about it.
The potential benefits of a Tesla-GM merger are plain to even a business-school dropout like your humble author. You put together a carmaker with mojo and a carmaker with capacity. Peanut butter in the chocolate. Get the idea? All of a sudden, a mildly-revamped Volt with “Tesla DNA” is selling like hot cakes at forty grand, because it’s a cheap Tesla instead of a hugely-expensive Chevy.