The Intelligent Investor [1]

GM’s Long Range EV A Further Threat to Tesla

When I put Tesla (TSLA) in the Danger Zone [2] last month, I argued that TSLA was overvalued due to investors discounting the threat of competition from the major players in the auto industry like Ford (F), General Motors (GM), and Chrysler. This week, we got more proof that Big Auto is taking electric vehicles seriously and doesn’t plan on letting Tesla own that market, which is what TSLA’s valuation implies the company will do.

On Monday, September 19, GM announced their plan to develop an all-electric vehicle that could go 200 miles per charge, just like Tesla’s Model S. The catch? GM plans to sell their car for only $30,000, less than half of the $62,000 sticker price for the Model S.

To show just how serious they are about achieving this goal, GM revealed a 50,000 square foot expansion [3] to its battery lab. The new addition nearly tripled the size of the lab. Those who believe Tesla has some great technological advantage should read this quote by GM Vice President Doug Parks: “There is nothing in the Tesla battery that we don’t know [4].” GM has taken apart and tested Tesla batteries. GM and all the other big auto players have the resources to copy Tesla now that the electric vehicle market is showing signs of profitability.

The market continues to be irrationally optimistic about TSLA. GM’s announcement barely moved the stock, but Thursday’s Deutsche Bank upgrade sent the stock up 7%. This market will latch on to any piece of good news as a reason to send the stock price higher. Warren Buffet famously said to be fearful when others are greedy. TSLA investors are getting very greedy, which means now is the time to be fearful. TSLA shareholders should get out before the competition bursts this bubble.

Sam McBride contributed to this article.

Disclosure: David Trainer and Sam McBride receive no compensation to write about any specific stock, sector, or theme.