Tesla’s Market Share Crisis: Should It Buy GM?

Tesla Inc. (NASDAQ: TSLA) confronts a fundamental contradiction: while positioning itself as a robotics and AI company, nearly all its revenue derives from car sales that are now faltering across major markets. The company’s share of the U.S. electric vehicle market has collapsed from 80% to less than 45%, representing a dramatic erosion of its core business foundation. This decline comes as competitors including General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F), and Hyundai collectively chip away at Tesla’s once-unassailable position.

The challenges extend beyond American borders, with sales falling in the European Union and facing significant headwinds in China. Despite none of these competitors individually commanding even 10% of the EV market, their collective impact has substantially diminished Tesla’s market leadership. This erosion occurs against a backdrop of persistent consumer preference for gasoline-powered vehicles, particularly in parts of Europe and the United States, where this trend could continue for years.

The electric vehicle market itself faces significant challenges that extend beyond Tesla’s specific circumstances. General Motors recently took a $1.6 billion write-off directly attributable to slowing EV operations, highlighting the sector’s broader difficulties. According to GM’s assessment, electric vehicle sales have cratered following the expiration of the federal government’s $7,500 tax credit, removing a crucial incentive that had previously driven consumer adoption.

Ford Motor Company’s experience further illustrates the sector’s struggles, with EV sales comprising less than 5% of its total unit sales through the first three quarters of this year. Industry analysis from iSeeCars projects that EV sales as a percentage of all new-car sales in the U.S. will drop from 8% to 4% due to the tax credit’s elimination, with this reduced level forecast to persist through 2027. This broader market contraction compounds Tesla’s specific challenges, painting the company into a corner regardless of vehicle improvements.

Adding to Tesla’s difficulties is growing consumer skepticism regarding its self-driving technology, with safety concerns mounting following a string of accidents. This technological skepticism further complicates the company’s transition toward its stated identity as an AI and robotics leader rather than a traditional automaker.

With Tesla’s market capitalization standing at $1.43 trillion compared to General Motors’ $54 billion valuation, a potential acquisition represents a strategically feasible option. Such a move would immediately position the combined entity as the dominant force in the U.S. automotive market, capturing 17% of total market share and placing it well ahead of second- and third-place competitors Toyota and Ford.

The acquisition would serve multiple strategic purposes for Tesla. Primarily, it would function as a defensive move, providing immediate access to the combustion-engine vehicle market that shows no signs of sharp decline in the near future. This would give Tesla a crucial revenue bridge while the electric vehicle market matures and consumer preferences evolve.

Secondly, the acquisition would dramatically expand Tesla’s potential customer base for its advanced technologies. Rather than reaching just 2% of the U.S. market with its AI-driven features, Tesla could potentially offer these technologies to 17% of American consumers—a level of market penetration that might otherwise take a decade to achieve organically.

Perhaps most significantly, General Motors’ extensive infrastructure—including more than 7,000 dealerships representing the largest dealer footprint among U.S. car companies—would provide Tesla with an immediate physical presence and service network. These dealerships offer near-universal proximity to American consumers, addressing one of Tesla’s most significant operational limitations while providing a comprehensive service infrastructure that currently remains underdeveloped in Tesla’s direct-sales model.

The proposed acquisition aligns with strategic principles outlined in the Harvard Business Review’s 2011 paper ‘Secure Your Flanks, Protect Your Business.’ Tesla’s current small footprint in the U.S. contrasts sharply with GM’s extensive market presence, creating a complementary relationship that could secure Tesla’s position during the extended transition from combustion to electric vehicles.

With gasoline-powered vehicles expected to dominate American roads for years to come, Tesla’s ambitious U.S. growth plans face significant timing challenges. The acquisition would provide immediate scale in the traditional automotive market while preserving Tesla’s technological innovation capabilities. This dual approach acknowledges market realities while maintaining forward momentum toward the company’s long-term AI and robotics objectives.

The strategic move would transform Tesla from a niche electric vehicle manufacturer into a comprehensive automotive powerhouse with both immediate market presence and future technological vision. By leveraging GM’s established dealer network, manufacturing capabilities, and combustion-engine expertise, Tesla could navigate the current market transition while building toward its stated identity as a technology leader rather than merely an automaker.