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GM could overtake Tesla as the most valuable US carmaker

[NEW YORK] The battleground between Tesla Inc and General Motors Co for the most valuable US carmaker is set to heat up this year.

After Tesla followed in the footsteps of the legacy automakers and announced a plan to cut jobs on Friday, shares of the electric vehicle maker dropped over 7 per cent in pre-market trade, suggesting its market capitalization could drop to around US$55 billion, if the decline continues in regular trading. That would take its valuation within close proximity of GM's, valued at US$54 billion.

If the outlooks from the two auto companies are anything to go by, GM looks set to be winning the race this year. Tesla's forecast of a "very difficult road" ahead, as it tries to ramp up the production of the lower-priced versions of the Model 3 sedan, contrasts starkly with the surprise outlook from GM earlier this month. The company, which was expected to warn about tough times due to a slowdown in auto markets in Europe and China, dismissed all concerns and forecast a strong profit, surprising investors.

Despite going through a rough and turbulent year as a company, Tesla shares managed to gain about 7 per cent in 2018, mostly helped by strong deliveries and profit for the third quarter, while GM's stock dropped more than 18 per cent. The trend has been reversed so far this year, with Tesla eking out a 4 per cent gain and GM rising more than 14 per cent.

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Tesla's job cut news was not unexpected, Jefferies analyst Philippe Houchois said, noting that it was consistent with slower growth rates and also an opportunity to improve productivity. The analyst said Tesla still leads the electric vehicle industry as it moves the price of its Model 3 car toward US$35,000, while most competitors remain engaged in an "EV negative margin sum game at higher price points."

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