Why Big Car Companies Don't Really Care About Tesla
NEW YORK (TheStreet) -- I usually bring up the prospects for other car companies launching cars that will compete more directly with Tesla
But why hasn't it already?
In the spirit of debate club, or being a good lawyer able to to argue both sides of every argument, allow me to present the case for why competing with Tesla just hasn't been anywhere near a top priority for the major automakers.
This year, Tesla is expected to sell 35,000 cars worldwide, with about half of those in the United States -- flat compared to 2013. The average selling price is approximately $100,000.
Who are losing out on those 35,000 annual car sales? I assume that we can allocate those 35,000 cars into seven buckets of 5,000 cars each.
These seven competitive buckets would be Toyota
Let's say you are one of these seven entities losing 5,000 car sales per year each, what's at stake for each of them? General Motors has annual sales of approximately $150 billion. 5,000 cars at a price similar to Tesla -- $100,000 each -- would mean $500 million in lost sales.
$500 million. Per year. Sounds like a lot, doesn't it? Well, it's one-third of one percent of GM's sales.
One third of one percent is a rounding error for GM. This quarter alone, GM's recall-related charges are estimated to be $700 million. That's $2.8 billion annualized, or almost six times as large as Tesla's sales impact on GM.
$500 million in revenue is what GM books on the average day, seven days a week. So losing one such day is sort of like that once-in-a-year snow day. The day when the kids -- er, factory workers -- get to stay home. And they still have a few sick days to take out.