Investors Pick Tesla’s Promise Over GM’s Steady Profits

When General Motors CEO Mary Barra introduced the Chevrolet Bolt at the CES gadget show last year, she took a shot at Tesla. Buyers can be confident because Chevy has 3,000 U.S. dealers to service the new electric vehicle, she said. The implication was that Tesla, with just 69 service centers nationwide, can make no such promise.

The uncharacteristic insult from Barra was designed to highlight the difference between 108-year-old GM and Tesla, a disruptive teenager. It also acknowledged a budding rivalry that could help determine whether Detroit or Silicon Valley sets the course for the future of the auto industry.

The tale of the tape favors GM. It has made billions in profits since returning to the public markets in 2010. GM got the Bolt, a $36,000 car that goes 238 miles per charge, to market before Tesla's Model 3. Tesla, the 14-year-old company led by flamboyant CEO Elon Musk, has never posted an annual profit.

Yet, as both CEOs face shareholders for annual meetings Tuesday, it is Barra who must explain to skeptical investors why GM's future is as bright as Tesla's.

GM's stock is trading around the $33 price of its initial public offering seven years ago. During that time, Tesla shares have soared more than tenfold to $335. Wall Street now values Tesla at about $55 billion, compared to around $50 billion for GM.

Despite efforts to paint themselves as technology companies, automakers can't shake their giant, capital-intensive global manufacturing operations. The huge investment needed to build vehicles yields low profit margins compared with tech companies that make software or cell phones, says Michael Ramsey, an analyst with Gartner. GM's net profit margin in 2016 was 5.7 percent. By comparison, Alphabet Inc., parent of Google, had a 22 percent margin.

Although it's an automaker, Tesla started in the tech bucket and remains...

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