It’s a long way to the top if GM is gonna beat Tesla

Pop Quiz: what do you call the employees of Elon Musk?

The Musketeers.

Elon Musk and his Musketeers have gained quite a reputation for themselves. They’re not afraid to dream big, and they back their words up with results. They set impossible deadlines and crush them. They’ve got their head in the clouds, but their feet are planted firmly on the ground.

In hindsight, companies like GM should’ve raised the alarm bell long ago. But they haven’t. They dismissed the electric revolution as improbable. As it turned out, the black swan effect kicked them in the teeth. And boy, did it hit hard.

(Note: black swan effect refers to improbable events with potentially disastrous consequences, like an earthquake, volcano eruption, and asteroid crashing into Earth.)

Among established brands playing catch-up with Tesla, GM arguably leads the pack. Their Ultium batteries are on par with Tesla’s lithium pack, just as an indication. Moreover, GM’s upcoming Hummer EV poses a serious threat to Tesla’s Cybertruck as the battle for new EV niche begins.

Yet, GM picked a fight with the odds stacked against it. And not just because of Elon’s outrageous Tweets (our favourite is: “Don’t censor the science!”).

No. GM faces an uphill battle because it lags behind in terms of electric battery manufacturing capacity as well as battery technology. And no amount of money thrown at it will solve this problem.

Manufacturing war

GM versus Tesla in terms of output. Who wins?

Put it this way, if you’re a student, should you study maths or engineering?

Maths student will research GM’s annual car output (7 million) and Tesla’s annual car output (350,000). Divide them (20x difference). Claim that GM nails it without even trying. Granted, 7 million includes both EV and diesel cars. But if GM converts even twenty five per cent of its facilities to EVs, it still wins.

Engineering student will nod and create a sketch of how EVs work, drawing a red circle around the electric battery. Then he will research how many batteries per hour GM produces, along with every other battery manufacturer on the planet minus Tesla. And finally, how much Tesla produces. Turns out, Tesla churns out more batteries per hour than everybody else on the planet – combined.

Electric cars don’t work without electric batteries. Tesla wins. You’re better off studying engineering. Period.

What’s the caveat?

If you pay attention, you can point out a flaw in the reasoning. What if GM writes a big fat check towards the construction of a dozen Gigafactories? After all, GM has way more financial resources than Tesla.

Unfortunately, the unchanging constant in business is that money can’t buy talent. GM plans to build its Ultium factory in Ohio in twenty-four months. Tesla built its Shanghai Gigafactory in half the time, so twelve months.

Moreover, Tesla has recently passed the minimum standard for entering the S&P500 index. Once policymakers deal with the paperwork, investors and hedge fund managers will flood to Tesla, prompting it to issue new stock.

Translation: Tesla will sit at the same table as the big boys.

But Tesla’s superiority extends beyond manufacturing capacity. With regards to battery technology, Tesla also kicks ass. According to future EV, Tesla’s batteries are forty per cent more efficient than Ultium batteries. Spice this up with the upcoming Tesla Battery Day in September and Elon’s promises of a fundamental leap in battery technology, and you get a recipe for disaster. With GM’s signature on it.

Finally, let’s give attention to the experts’ claims that once Tesla reaches the target of one Terawatt per hour output (20 Gigafactories away for Tesla, 24 for GM), this will spell endgame for GM’s energy dream.

Somebody might say it’s too early for this sort of discussion, but students of astrophysics will disagree.

Chaos theory

According to the “80/20 Principle” book by Richard Koch, chaos theory dictates that what happens first, even by a small margin, yields a disproportionate effect. A small lead early on can turn into a larger lead or more dominant position later on. Time magnifies minuscule advantages.

A firm that, in the early stages of the market, provides a product, which is ten per cent better than its rivals ends up with one hundred per cent or two hundred per cent greater market share.

If, in the early stages of a country’s civilisation or rebirth, fifty one per cent of drivers decide to drive on the right rather than the left side of the road, this will tend to become a norm for nearly one hundred per cent of the population down the line.

In a pond, if you start with goldfish of almost exactly the same size, those that are slightly bigger become much bigger. With slightly stronger propulsion and larger mouths, they capture a disproportionate number of other fish.

In a similar vein, Elon Musk doesn’t have to blow up GM’s factories with a bazooka (though he might) to achieve market dominance. A 4-Gigafactory gap will grow into 5, then 6, and so on.

At a certain point, economies of scale will kick into high gear, driving the battery price down and rendering competition unprofitable. If you feel like an Avenger, you may call this endgame.

The future is bleak – if you’re not Tesla

“The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we’ve made our position unassailable.” – Sun Tzu.

Like the goldfish in the pond, Tesla enjoys stronger propulsion and has a bigger mouth, and will enjoy it even more so in the future.

If Tesla reaches 1 Terawatt per hour output first, this will be game over for GM.

Kaput.

Santa mierda.

Porca vacca.

And that’s before you bring superior batteries into equation. And incoming Tesla Battery Day. And twice as fast Gigafactory construction speed. And financial boost from entering S&P 500.

That’s a hell lot of ‘and’s.

Hook, line and sinker

Whichever way you look, Tesla = future. With an elegant 3D chess move, Elon Musk controls the playing field in both the electric car and battery markets. He’s orchestrated a quiet revolution in the room, catching big brands unaware and bringing their domination to a premature end.

Now that they scramble, they might realize it’s too late. The doomsday clock is ticking. And unless chaos theory suddenly misfires, that hour will come sooner rather than later.

As the face-off between Tesla’s Cybertruck and GM’s Hummer EV draws nearer, and the world waits with bated breath, Tesla’s batteries might tilt the table in their favour. But that’s a topic for another day.

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