Tesla's competition in Detroit can't keep up – the EV company keeps winning

• Traditional auto companies were supposed to catch Tesla in the EV market.

• This past week shows how badly Detroit has failed with EVs.

• The whole auto market is getting tougher. Tesla looks better prepared than Ford and GM.

The traditional auto industry has had more than a decade to build viable electric vehicle businesses. It's shocking that these companies are still failing so badly at it.

Tesla released the Model S, its first full production EV, in 2012. The company almost went bankrupt, so you can forgive Ford, General Motors, Toyota, Honda and others for sticking with gas-powered vehicles for a while.

Then, Wall Street analysts spent years issuing sell ratings on Tesla while hedge funds shorted the stock. Again, maybe the traditional auto companies get a pass.

However, at some point in the past half decade or so it became clear that Tesla had worked out how to make and sell EVs at a healthy profit. In the third and fourth quarters of 2018 combined, when Model 3 sales were really ramping up, the company generated net income of more than $450 million.

At that point, the rest of the industry piled in. The consensus view was that they would catch Tesla and competition would become fierce and Elon Musk's company would again descend into trouble.

This quarter shows how wrong those predictions have been.

WeWork-level losses

Ford's EV business lost $1.3 billion, before interest and taxes, in the third quarter of 2023 – on just $1.8 billion of revenue. That's almost WeWork-level losses. Ford also postponed $12 billion of EV investments last week.

GM and Honda just scrapped a $5 billion plan to make affordable EVs. GM also abandoned its EV production target through mid-2024, and is delaying the manufacturing of several EV models to try to improve the profitability of these new operations.

The challenge is the same for both Detroit giants: They haven't worked out how to make EV's profitably.

There's no longer an excuse

A few years ago, these companies had an easy excuse: Tesla was losing billions of dollars making EVs so this business just wasn't really viable for anyone. Toyota's CEO is still saying EVs are not viable.

The problem now is that Tesla and other pure EV manufacturers have shown that electric vehicles are in fact very profitable when made properly.

China's BYD just reported a record quarterly profit of $1.4 billion, up 82% from a year earlier.

Tesla made net income of $1.85 billion on revenue of $23 billion in the period. The company's power storage business was really profitable. But even without that, the auto business is now highly profitable: Tesla got the average cost of its vehicles down to about $37,500 in Q3, while the average selling price was roughly $44,500, according to the company and Goldman Sachs estimates.