Looks like there is so much excess cash in the system that investors are almost begging electric vehicle start-ups to take their money.
In addition, General Motors is being encouraged to spin off its electric vehicle unit as a separate business to unleash value. The suggestion is brilliant strategy if you have cash to burn and do not care about the survival of your existing dealers.
The market remembers GM’s attempts at product and culture change by launching the unsuccessful Geo, Saturn and Hummer brands. All these diversification moves are classified as market failures for different reasons. One common problem was lack of cash allocated for product development.
Finding cash these days does not seem to be a problem. Yet, finding the right GM spinoff strategy will be critical.
The structural cost is extensive for separate go-to-market functions, separate adminstrative buildings (think Detroit train depot being renovated now by Ford), manufacturing locations and a distribution and service network that can compete with Tesla. It will also take years to complete.
The market will not wait for the right strategy. GM dealers already will have many electric-only models in their showrooms at the end of next year.
These electric models, many overpriced, will compete every day with gasoline models getting extensive discounts and support. That is a showroom dilemma that Tesla never had to face, and it's the fly in the ointment potentially curtailing a new approach.
There will be over 40 battery-electric vehicles in the U.S. market by 2023. Many companies will be unprofitable and continue to burn cash.
Some valuations will burst like the Tulip bubble of 1637 (when some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsworker) or the dot-com collapse in the late 1990’s. Value destroyed.
Capitalism continues and not everybody will win.
Warren P. Browne is president of WP Browne Consulting and is a former General Motors executive.
