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2 Auto Companies Challenging Elon Musk Now - Stocks in the News

Tesla Motors' ( TSLA ) Elon Musk has repeatedly denounced the mainstream auto industry for, in his view, failing to aggressively respond to his effort to produce battery-powered cars for the masses. But as the Detroit Auto Show kicked off Monday, two auto companies started to fight back.

General Motors ( GM ) and Nissan Motor ( NSANY ) announced challengers Monday to Tesla's line of electric vehicles, intensifying the battle for control of that market by 2020. Auto makers will fight the war on two fronts: all-electric, battery-powered vehicles designed to compete with autos such as the Tesla Model S and the well-established electric and gasoline hybrid.

GM Bolts Ahead with Electric SUV

GM stole the show Monday when it introduced the Chevrolet Bolt, an all-electric SUV capable of driving 200 miles on a single charge. The Bolt, GM's first electric car since the EV1 from the 90's, is aiming to debut in 2017 at a price around $30,000.

That target date might ring a few bells for Tesla fans. 2017 is the Palo Alto, California-based company's expected rollout date for its Model 3, an SUV with a driving range of 200 miles that will cost around $35,000. The Model 3 is Tesla's much anticipated follow up to its Model S, which while a more powerful and sporty vehicle, comes which a hefty price tag at $69,000.

The similarities in model, range and price seem to be more than mere coincidence. Tesla will have to face a determined rival in Detroit, where GM CEO Mary Barra plans to offer "an affordable solution" for the electric car market.

Nissan Remains a Competitor

But if price is the sticking point, then the auto industry can't quite ignore another challenge from across the Pacific. Japanese auto maker Nissan already sells its Leaf electric car for just above $22,000, with over 75,000 units sold since 2011.

There's just one catch: the Leaf has a limit of 84 miles on a single charge, under half of what Tesla and GM say their models will be capable of.

Despite this obvious detractor, Nissan may have a few advantages against its more aggressive competitors. Three years is a long time, Chief Executive Carlos Ghosn pointed out Monday to media Detroit. In that time, "You can expect us to come along with a lot of enhancements," he said.

While these three cars lock in for a fight over the end-of-the-decade market, GM has one extra card in its hand: the Chevrolet Volt.

The Volt is GM's premier hybrid, and the 2016 redesign Barra announced in Detroit Monday will bring significant improvements. The latest model boasts a new exterior, seating for five passengers and a 50 mile range on a full charge. Combined with its gas tank, the Volt can drive 420 miles, playing to consumer fears of an electric car stranding them in the middle of the highway.

Electric Outlook

Electric cars excite consumers in the way that science fiction movies wow viewers with predictions of incredible technological advances. But in a world where some Americans can buy gas for less than $2 a gallon, it seems unlikely that cars will stop using the fossil fuel any time soon, especially after Goldman Sachs forecasted Sunday that U.S. oil will average just $40.50 a barrel in the second quarter and $50.40 a barrel for the year.

GM's hybrid is an essential factor in the company's electric strategy. Barra aims to have 500,000 electrified cars on the road, including the battery-powered Bolt, by 2017. That would give GM a significant head start over Tesla, which Musk says will strive to sell 500,000 all-electric cars per year - a familiar figure - by 2020.

When Musk speaks at the Detroit Auto Show this afternoon, he is expected to criticize larger auto makers for not responding to Tesla more aggressively, Mike Ramsey wrote in the Wall Street Journal Monday. Based on GM and Nissan's moves Monday, Musk might be backed into a corner sooner than he thought.

Bottom Line

While the big automakers are clearly starting to take the Tesla threat seriously, it is still too early to tell if GM and NSANY can capture market share in the electric car market. And with crashing oil prices , some might forgo an electric vehicle purchase for now, potentially pushing out some sales targets for this up-and-coming segment of the industry.

In terms of a stock outlook, investors should note that both GM and TSLA currently carry Zacks Rank #3 (HOLD) ratings, while Nissan has a 'sell' rating right now. The earnings estimate trend hasn't been too favorable for any member of this trio, while the Zacks Industry Rank for the auto-domestic segment is barely within the top 50%, and the auto-foreign segment is in the bottom third.

This could all change if any breaking news comes out of the Detroit Auto Show or based on how Musk responds to these new challengers in the electric car market. Either way though, it looks as if Tesla has got its wish and that more competition, and change, is coming to the industry soon.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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