Tesla and GM sold more cars. Only one made more money

Whereas Tesla’s operating margin was almost 9 percentage points higher than GM’s a year ago, the gap in the most recent quarter was just 3.4 points. (Source: Bloomberg)

Who said this?

"As our fleet rolls over to this architecture, we’ll start to see costs head below $1 per mile, the magic threshold at which robotaxis become cheaper for most people than owning a car. Lastly, we have something else that's been in the works for a few years that is highly disruptive to the already highly disruptive AV industry."

Not Elon Musk, as it turns out, but Kyle Vogt, the slightly less famous founder and head of Cruise, General Motors Co’s in-house autonomous vehicle developer. Vogt’s Muskian double “disruptive” tease was one of a few futuristic flourishes on GM’s earnings call Tuesday morning. The substance, however, was decidedly old-school, offering a useful contrast with Tesla Inc.

The cover of GM’s slide deck showcased six electric vehicles, virtually none of which you can actually get your hands on today. In GM’s North American business, which accounts for the vast majority of its revenue, less than 2 percent of the vehicles sold last quarter were electric; roughly 16,000 in total. Given the price war in EVs so far this year, that was good for GM.

Consider: Tesla sold 83 percent more vehicles in the second quarter, year over year, but its overall operating profit — as in the total amount of dollars made — actually fell. As a slogan, this would approximate something like “selling twice the cars for less money!” GM, meanwhile, delivered about 20 percent more vehicles; its operating profit increased by 32 percent, despite taking an unexpected charge related to earlier recalls of the Chevrolet Bolt EV. Whereas Tesla’s operating margin was almost 9 percentage points higher than GM’s a year ago, the gap in the most recent quarter was just 3.4 points. GM actually raised profit guidance for the year (Tesla doesn’t issue such guidance).

The clock is ticking on GM to some degree. As it invests in new electric models, such as those gracing its otherwise gasoline-fueled earnings presentation, so it must increase sales of those EVs in order to make good on that investment. Plus, if you keep teasing new EVs, eventually customers are going to want to see them on the dealer lot. Yet GM has some flexibility in dialing this up and down; starting from a low base, it can tap early adopters of its electric models and judge the pace of that as it brings on new production. The surprise resurrection of the Bolt, announced Tuesday, speaks to this flexible approach, with GM choosing to tap into residual brand loyalty with some lower-cost manufacturing.

Unlike Tesla, GM does face the decidedly old-school wildcard of a potential United Auto Workers strike later this year (something with which higher earnings guidance probably doesn’t help). But there is a basic difference in business model that is working in GM’s favor so far this year. For Tesla, if demand for EVs doesn’t support current pricing, its only options are to dial back production or cut prices. Since the first option would harm Tesla’s growth story — a critical pillar for the stock — it isn’t really an option. So prices, and therefore, profits, take the hit. GM, on the other hand, is still tied overwhelmingly to its internal combustion engine business and so, if demand for EVs isn’t blazing away, it can lean into the legacy business while still investing in the new stuff.

It would be remiss, of course, not to point out that, despite all this, Tesla’s $850 billion-odd market cap is more than 16 times that of GM. Even imaginary robotaxis command very different prices in this industry.

Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. Views are personal and do not represent the stand of this publication.

Credit: Bloomberg