Published on February 13th, 2019 | by Zachary Shahan
February 13th, 2019 by Zachary Shahan
I published an article early this morning about a potential partnership between GM and Tesla in which GM would build electric trucks using Tesla powertrains. Tesla denied such a partnership and GM declined to comment on the story. (Despite what some people have written, GM did not deny the rumor. It declined to comment, seemingly following a corporate policy of not commenting on rumors or speculation.) I am not permitted to say much more regarding our sourcing due to requests for anonymity, but the story was not invented out of thin air and the originating rumors came from two unrelated parties based in different locations.
Also, I find it interesting that news broke a few hours later that GM and Amazon are in talks about investing in Rivian. Odd timing, eh?
Some have claimed this definitively knocks down the idea that GM might use Tesla powertrains for an electric truck. I personally think it’s more than a coincidence that both matters came up at around the same time, and I believe there are a few possibilities here. But I’ll come back to that conjecture at the end of this piece. For now, I’m jumping to a loosely related matter I’ve been planning to write about for a couple of weeks.
As some of you read, I collected the story that a certain early investor in Tesla who held 7.6% of the company soon after IPO turned around and sold all of its shares in one day after receiving a “hold strong, we’ll get through this” kind of update from Elon Musk. The shareholder sold all of its shares (7%) the day after receiving that update. I received this information more than a year ago from someone fairly close to the matter on the former shareholder’s side, and I confirmed it definitively before publishing the article. (Side note: Some readers thought I was referring to Ron Baron, who has mentioned in interviews that he held Tesla shares very early, sold them, and then got back in at a significantly higher price. I was not referring to Mr. Baron and don’t think he ever held more than 5% of Tesla’s shares, certainly not after IPO. The shareholder I was referring to was essentially the Abu Dhabi government, through a specific agency, the Abu Dhabi Water & Electricity Authority, or ADWEA.)
Despite having definitive confirmation of the overall story, I wanted to tidy up some specific details, so I spent a few hours going through old SEC filings. That was interesting by itself since it threw me back into much earlier Tesla history — mostly stories that I knew well but that nonetheless struck me as I looked at the old press releases and SEC documents. I even pulled out a couple of stories to use for some Tesla flashback articles.
The main story I thought it would be interesting to highlight were August and October 2010 statements about a new partnership with Toyota. “Tesla Motors, Inc. (‘Tesla’) entered into a Phase 1 Contract Services Agreement (the ‘Agreement’) with Toyota Motor Corporation (‘TMC’) for the development of a validated powertrain system, including a battery, power electronics module, motor, gearbox and associated software, which will be integrated into an electric vehicle version of the RAV4.” Most of us know that Tesla had this relationship with Toyota, but it struck me that it’s now more than 8 years later and Toyota is yet to produce a fully electric vehicle itself. The RAV4 EV, which owners loved, is long retired and Toyota has not found a way to bring another competitive EV to customers’ garages — or decided it didn’t want to do so. While that relationship is long over, Tesla could now provide Toyota with a pretty wicked powertrain for any of its vehicles (but ideally a new EV-specific body) if they wanted to partner again.
The Toyota partnership was a major financial boost to Tesla at the time. Ironically, Toyota’s US sales seem to have been hurt significantly by Tesla’s rise. (See this, this, and this.) What if Toyota had taken what it had learned from that Tesla partnership in 2010 and tried to become the world’s EV leader?
The Toyota partnership trailed the earlier and more significant Daimler partnership. As Elon Musk has indicated, there’s a good chance Tesla wouldn’t be here today if not for Daimler. In August 2010, Tesla provided an update on the deepening partnership: “Tesla delivered a record number of battery packs for the Daimler Smart fortwo electric vehicle and started delivering on the initial milestones for the development of the Daimler A-class electric vehicle.” Again, the relationship is long over and we have waited years for a ground-up fully electric Mercedes from Daimler itself. Nearly a decade after Tesla and Daimler were working together to put Tesla powertrains in smart cars and Daimler bought an equity stake of nearly 10% in Tesla, and 5 years since Daimler completely sold its stake in Tesla, the Mercedes-Benz EQC is coming to market.
Again, it’s ironic that Tesla seems to have now stolen a ton of Daimler’s lunch money since 2010. The Tesla Model S knocked the Mercedes-Benz off its perch on top of the large luxury car market and the Tesla Model 3 has completely embarrassed smaller luxury cars from Mercedes-Benz. How would things have been different if Daimler had gotten serious about EVs in 2010 and tried to lead in that market?
That brings us back to today — or actually, late 2018. Sort of out of the blue, Dieter Zetsche, Chairman of the Board of Daimler AG and CEO of Mercedes-Benz Cars, indicated that they may be interested in partnering with Tesla again on electric vans. That came as a bit of a confusing shocker. Elon Musk responded (on Twitter, of course), “Maybe interesting to work with Daimler/Mercedes on an electric Sprinter. That’s a great van. We will inquire.” A week ago, Zetsche told Bloomberg “These talks are happening,” but “the outcome is open.” It’s quite interesting that Daimler would potentially return to a collaboration using Tesla powertrains several years after the last contract ended, but apparently showing Tesla’s leadership on electric powertrains and battery production.
Okay, now we can really get back to today. The GM–Tesla rumor I reported in the wee hours of the morning was an odd one. I sat looking at the details and collecting more for days before running the piece. GM has historically had a rather chilly relationship with Tesla. It seemed to race the Chevy Bolt to market (largely using LG products inside) to beat the Model 3 to market. GM reportedly won’t be making money on the car until the early 2020s. But while the rivalry with Tesla on electrics may be a tense one, GM has a rather bigger rivalry — a rivalry with Ford in the truck arena. It is well known that Tesla is eager to jump into that market as well, but the company still needs to get the Model Y to market, among other things. What if it could power some GMC/Chevrolet trucks in the meantime and help cut emissions? (I’ll repeat: Tesla denies any such partnership.)
The Ford rivalry is old, but an electric component came into play quite recently. Two years ago, Ford disappointed us by revealing plans for a hybrid F-150 instead of a fully electric pickup truck. It was a big letdown that Ford wasn’t being bolder. With two years to ponder the topic (and perhaps work on something more interesting behind the scenes), Ford told us a fully electric F-150 was indeed in the works. We don’t really know when this would come to market (the hybrid was supposed to arrive in 2020). We don’t really know what Ford has in mind for this electric truck. But I presume one thing is certain: If Ford is bringing an electric pickup to market, GM needs to. On the flip side, if Ford caught wind of GM working on an electric pickup, it may have scrambled to get this statement out there to make it look like the leader, not the laggard.
No matter what the case is between who was working on an electric pickup first, it seems the two American automakers must have their heads down trying to figure out how to make the strongest, most powerful, most exciting electric truck on the market. One obvious solution from an objective person’s perspective would be to tap Tesla for a powertrain. It’s already made progress on an electric semi and has the most powerful cars and SUVs on the market. It also has the cheapest batteries, as far as anyone can tell. But does that approach sacrifice long term competitiveness? (For a quarter-to-quarter CEO, what does that actually matter?) But would Tesla be able to supply the powertrains with so much demand for its own vehicles? (Maybe. If the hardest part of the process for Tesla is now putting the cars together, it could potentially make some money selling powertrains to other automakers, which would certainly help with the goal of perpetual profits.) Would GM first reach out to Tesla about this, or would it get some solid ideas down on paper before testing the waters and risking an embarrassing leak?
I don’t know what’s been going through the mind of Mary Barra, but there are some obvious points to consider. Whether more seriously interested in Rivian or more seriously considering electric powertrains from Tesla, it pays to have some negotiating leverage, and it’s smart to not put all your eggs in one basket. If GM is aiming to buy a stake in Rivian, it may want to show that using Tesla powertrains instead is an alternative option, boosting its negotiating position. If GM is interesting in reaching out to Tesla about a powertrain deal, it may want the word out there that it could partner with Rivian instead. Or perhaps GM is working on various electric truck designs and simply weighing various options — not negotiating at all at this point.
Or maybe I — or others — are just being punked.
There may be a lot of question marks up in the air right now, but it’s clear that the electric revolution is much further along today than in 2010, and Big Auto deals with Tesla or other electric startups are much more serious now than when the Toyota RAV4 and Mercedes B250e were in development. Much more is on the line for automakers like GM and Daimler. This is not about a short-term, low-volume compliance car any more. This is about big-time moves into an electric future. You don’t want to be getting your electric pickup truck to market in 2023 while other automakers have been gobbling up market share for two years and developing a 21st century brand young folk will have imprinted in their brains like I have “Like a rock” imprinted in mine.
To end, we are now taking bets on which US automaker gets an electric pickup to market 1st, which gets one to market 2nd, and which gets one to market 3rd. We can also take bets on where the batteries will come from and where the motors will be produced. Throw your votes in now.
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