What GM's Tesla Task Force Could Conclude

NEW YORK ( TheStreet) -- One of the more amusing automotive news reports in recent memory appeared last week, when we were told that General Motors ( GM)CEO Dan Akerson has commissioned a task force to learn about Tesla ( TSLA).

Oh boy, does this discovery open up a field day of questions!

Let's start by kicking GM in the gut: Don't you have at least a couple of people dedicated to competitive analysis? If you do, what have they been doing all along? Did they think they were working for the government, where no competitive analysis is needed? Do you mean to say that your competitive analysis team hasn't spent any time on Tesla already?

In any serious company, the entire management team should be engaged in competitive analysis more than an hour every day. You should talk about the competition, you should use the competition's products, and you should conclude what you need to do in terms of "best practices."

In almost any business -- hotel, restaurant, computing, clothing, whatever -- half the battle is won by ensuring that you copy the competition's best traits, while avoiding their worst. You don't really need to invent anything if you can simply copy the best aspects of each competitor.

When Tesla started shipping the Model S one year ago, GM should have been first in line to buy one or several Teslas. Management should drive them every day, and engineering should take them apart.

When the iPhone 5 came out, don't you think Samsung was first in line and bought a dozen of them and took them apart? Was GM so horribly mismanaged that it didn't do this?

And what about GM's senior management? Presumably they read magazines and can use the Internet. Tesla Model S has won almost every "Car of the year" award. Shouldn't they not just wonder how it drives, but also make sure to get behind the wheel of such a superior car every single day until their own engineering department coughs up a similar product?

Okay, let's move on to describe what GM's rationale against pure electric cars has been all along. This history is well-documented.

The first Volt prototype was engineered in 2006 and the work on the "real" production car started early 2007. GM Vice Chairman Bob Lutz and engineering boss Jon Lauckner decided on the extended-range Volt architecture for well-articulated reasons.

Their argument was that a pure electric car was going to be too expensive and too heavy, and at the end of the day it was still going to need too much time to recharge. On the other hand, if you designed an electric car with a smaller battery and 35 miles of range, you could put a small gasoline engine behind it so as to take away the so-called "range anxiety" and drive as far as you wanted, just like any other car. It would still drive like an electric car 60%-90% of the time for most people.

The Volt architecture has some drawbacks: It's not a "pure" design, so it adds space and complexity with gasoline tank, exhaust system, and so forth. In contrast, a Tesla Model S can be made with a far bigger luggage space.

Basically, as it turned out, there was room in the market for both: GM has been selling approximately 50,000 Volts since inception, and Tesla is selling 5,000 cars per quarter right now.

Another way to express it is this: The market for plug-in electric cars remains illiquid, in that there aren't enough variants in the market to cover every single need in terms of size and performance. Therefore, some people are happy paying $40,000 for a Volt whereas others are equally happy paying $100,000 for a Tesla.

As it turns out, however, for the purposes of a test drive, the Tesla is obviously the more exciting car. For all of us who have driven it, there is just no comparison. It's easy to see how so many people go from being excited about the car, to being excited about the stock.

As a result, Tesla is enjoying a dramatically superior multiple on every conceivable metric. The market cap is close to $15 billion based on really no meaningful earnings to date.

GM will never enjoy Tesla's multiples. However, perhaps GM could sink Tesla's multiples for whatever reason? What I mean is that if GM is jealous of Tesla's huge market cap in relation to the size and profitability of its business, it could blow a hole in it -- if it just wanted to.

Let me tell how.

It's simple, really. As I mentioned above, the market for plug-in electric cars -- of all variants, broadly speaking -- is illiquid. There is only one pure EV with anywhere near 265 miles of range. In fact, the closest competitor in the pure EV market is the Tesla-based Toyota ( TM) with only a shade over 100 miles of average range. Everyone else is mostly in the 70 to 95 miles category.

You can make the argument -- as GM has done -- that by far the most efficient want to achieve 265 miles -- and more -- of range in a car that you will drive in electric mode most of the time, is to use the Volt architecture. Yet, at the same time Tesla has proven that there is a market for a long-range pure EV as well.

There is nothing that is stopping GM from making what is essentially a copy of the Tesla Model S. No, I don't mean an identical copy, but "copy" as in Toyota Camry being a copy of Nissan ( NSANY) Altima: Basically, a car that's extremely similar on paper. GM has access to all the technology to do this; they just didn't think a car like that would fly in the marketplace.

If GM simply copied Tesla in this regard, it would inflict what could be a huge blow to Tesla's market cap: Punctuating the scarcity premium. Tesla is valuable, in part, because some investors perceive it doesn't have competition.

I can hear the objections already: GM wouldn't really be able to copy Tesla perfectly, therefore it wouldn't really work, etc. etc. You are missing the point! The point is that as long as GM came out with a high-performance spacious pure EV with at least 265 miles of range, and priced it within striking distance of Tesla, suddenly Tesla's stock market valuation would likely come down a lot.

By the way, this goes not only for GM, but for every other car company as well. Surely at least one out all of these giant corporations will be able to cough up a Tesla-competitor within the next few short years? And when that happens...

Yes, yes, the arguments against this notion are never-ending: In three to four years, Tesla will have moved on to something better and better, and so forth. That is, again, missing the point. Broadly speaking, the major car companies have access to the necessary technology.

Tesla's superior formula was, in part, the focus on the right technology. The other part of the formula, however, was in the keen sense of product definition, just like Apple ( AAPL) with the iPad. Tesla saw an opening in the market, and focused all resources on a superior category-killer.

One can legitimately make the argument that there is a place in the market for all of these kinds of plug-in cars: The sub-100 mile cars such as Nissan LEAF, and the extended-range cars such as Chevy Volt. Key to Tesla's success right now is its absence of direct competition.

There is an an additional set of counter-arguments here, and they relate to everything outside the car itself. In other words, it's about Tesla's direct sales model, and substantial lack of union labor. Could GM copy those aspects, too?

Clearly, for GM to get rid of its dealership model and union labor is unrealistic in the medium term. They will have the right car before they get rid of the other handicaps in competing with Tesla.

However, GM does have one advantage against Tesla: scale. It ought to be able to procure materials and produce a car such as this, at a lower cost.

The moral of the story is this: Tesla could very well remain the EV leader for as far as the eye can see. The EV market could, in turn, outgrow all estimates by a mile. One factor, however, where Tesla isn't in control, and could relatively easily be punctuated, is the copycat department.

One can simultaneously be Tesla's biggest fan -- from both a product and company perspective -- and also recognize that its market multiple will eventually peak, as a result of far more direct competition. At some point in the next few years, I'm guessing this will happen.

At the time of publication the author was long AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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