[video] GM: Six Years Ahead of Tesla

NEW YORK (TheStreet) --When is 90% good enough? How much are you willing to pay for the last 10% of anything? In this article I make the argument that General Motors (GM) beat Tesla (TSLA) by at least six years to make the $40,000 de facto electric car.

The main product goal for Tesla is to deliver the cost-reduced, smaller version of the current Model S. This car would have a range of 200 miles (when new) and cost something like $40,000, before tax adjustments.

Originally, this "Generation 3" $40,000 Tesla car was meant for 2015. Then it became 2016. Now it looks like perhaps 2017. Judging from the commentary on a recent Tesla quarterly earnings call, Tesla remains mostly busy perfecting the current Model S, and finalizing the Model X which could reach volume production as early as 2015. Significant resources spent on the "Generation 3 program" would begin in 2014.

Meanwhile, GM showed the original Chevrolet Volt prototype in January 2007, the final design in September 2008 and production started in November 2010. The car cost approximately $40,000.

Lets first establish the timeline here: Tesla will have its $40,000 car in late 2016, at best. The Volt entered production in November 2010. That means that in terms of reaching that magic $40,000 price point, GM will have been at an absolute bare minimum six years ahead of Tesla.

I can hear the protestations from the Tesla fan club already. Let's deal with these objections in turn:

"But the Tesla is 100% electric; the Volt isn't."

The Volt goes an average of 38 miles on 100% electric power, then another 342 miles using a fairly regular gasoline engine for a total of 380 miles worth of range. In contrast, the current Tesla Model S can go 265 miles on its only electric/battery power source; the third-generation car for 2017 would be able to hit 200 miles.

Based on this, Tesla fans cry foul: "A pure electric car isn't the same thing as a car that can only go 38 miles on electric." Per definition, they are right -- but I also argue that for most people, this doesn't matter much, if at all. Why?

The reality is that most people don't drive more than the Volt's 38-mile electric range most of the time. Obviously, individuals have different habits so there is no one true answer here -- but most people have a commute between 10 and 40 miles. If you go to voltstats.net, which is a Web site collecting driver data for Volt cars, you can see the driver statistics. The fleet median is 79% electric driving. There are numerous people driving over 99% of their Volt miles on wall-power electric.

My point here is simple: For many people, the Chevrolet Volt is a 90% electric car, a 99% electric car -- or on average a 79% electric car. It drives like a 100% electric car for those 90% or whatever miles -- not like a hybrid, unlike many other plug-in hybrids. Many people drive for up to six weeks before the Volt's gasoline generator turning on.

So yes, Tesla is -- and will be -- a 100% electric car. But really, do most people care? My sense is not. For most people, the Volt's 90% ability is good enough, especially if it comes with a much lower price tag.

There are of course a variety of puts and takes in this comparison. Let's take a 200-mile all-electric car such as the third-generation Tesla in 2017: 200 miles is great, but you won't get 200 miles on a day when the temperature is below the freezing point. Also, after a few years you will lose perhaps 20% of the battery capacity.

A 20% reduction in battery capacity now means you have 160 miles of range. Then wake up on a cold morning and you could be looking at 130 miles of range. That may be enough for many people, but it's not 200 miles anymore.

Of course, when the car is new and you are driving in flawless California climate at an even speed of 50 mph, you will likely get a lot better range -- perhaps even 250-275 miles. So 200 miles is only an average, and when the car is new.

In contrast, a Chevrolet Volt will not see much impact to its 380 miles of range -- whether on a cold day or when the car is old. The Volt could lose its entire 38 mile electric range (I can see half as being realistic on a cold day a decade into the future), and it hardly makes a dent to the car's usability for longer trips.

The puts and takes between all-electric and the Volt extended range model continue. An all-electric car is liberated from all sorts of heavy and complex equipment taking up space: gasoline engine, transmission, fuel tank, exhaust system and so forth. As a result, you free up more space for people and their luggage. You could also get better handling.

On the other hand, an all-electric car needs a much bigger battery. That's not something that scales infinitely. A bigger battery means more weight, which in turns requires a bigger battery, which in turn means more weight. You get the point.

It's a little bit like those nonstop New York-Singapore flights: You have to carry more fuel, which requires more fuel and then the flight is cancelled.

GM had precisely this debate internally in 2006-2007 as they determined the architecture of the Chevrolet Volt. They debated all-electric versus extended-range electric architectures.

This debate is accounted for in the book: Chevrolet Volt: Charging Into The Future by Larry Edsall.

To wit, as described in the book, GM engineering guru Jon Lauckner laid out the argument to Bob Lutz and the rest of the GM engineering team: All-electric means you have to keep carrying more weight in an ever-increasing vicious cycle. In Lauckner's argument, at some point you still have to spend a long time recharging the car, no matter how much money and weight goes into the battery, so you just can't win.

In other words, if you assume that recharging a battery will take a long time, an all-electric car becomes a very difficult economic proposition. As a result, GM was able to instead make "the 90% solution" in the form of the 380-mile range Volt, already in 2010 -- at least six years ahead of Tesla's $40,000 car with only a 200 mile range.

However, the 100% electric vs. Volt extended range argument continues to shift even further: New forms of recharging batteries.

Two of Tesla's great innovations are in the areas of recharging and battery swapping. Tesla has accomplished unprecedented recharging power using 440 volt DC 120 amp circuits, where you can get more than 150 miles in 30 minutes. That's a giant leap from anything previously available and was not considered possible by GM or Lauckner in 2006-2007 when the Volt was decided.

Furthermore, Tesla has showed that it can swap a battery in under two minutes and that this battery can yield 265 miles of range. That solution will be rolling out in selected locations in the coming months and would cost $80 per swap.

If you consider total-cost and lifecycle as well as lifestyle equations, fast recharging and battery swapping are likely to be more important longer term than the battery in the car itself. Seen in that light, whether an all-electric car has 200 miles or 300 miles of range, may not matter as much a few years from now as it does today.

So what are we to make of all of this? I think there are two major points:

1. GM was at least six years ahead of Tesla in delivering a $40,000 car that most people can drive on electricity at least almost all of the time. Volt shipped in 2010; Tesla, at best, in late 2016, probably later.

2. Faster recharging techniques and battery swapping could in turn swing the pendulum in favor of all-electric at some point. This requires infrastructure investment (which the Volt did not require), but could be worth it going forward.

It looks to me like the ingredients to fuel electrification of the automotive fleet in the next few years will have these components:

  1. Plug-in hybrids such as the Chevrolet Volt that require zero new public infrastructure investment. Just charge at home, at work or not at all if necessary. This makes for the least expensive, zero-compromise-usability electrified cars.
  2. All-electric cars for those who need maximum sports car performance or need a strict commuter car for relatively short, set distances. Tesla is the leader here.
  3. Faster recharging techniques and battery swap facilities to enable a shift to less expensive all-electric cars where the electric range doesn't need to be much longer than 200-300 miles to be competitive with hybrids. Tesla has the leadership to date in this area.

GM and Tesla, together with BMW and Nissan, look to be in the vanguard of these developments over the next five years. Much of the rest of the industry is lost in the hydrogen and fuel cell weeds. Or, in some cases, just waiting around to see if GM, Tesla, BMW and Nissan will succeed in making the electric car market mainstream.

Come 2016 or 2017, who do you think will have delivered on the most interesting, and best-selling, $40,000 car with an electric motor -- GM or Tesla?

At the time of publication the author had no position in any of the stocks mentioned.

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

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