Read part 1 here, read part 2 here, read part 3 here.
Up to this point, we’ve discussed tesla (TSLA - Free Report) on the whole as a company, we’ve taken a look at its unique financial situation, and we’ve outlined the company’s product offerings. We’ve taken it for granted so far that demand for Tesla’s products was assured – that there were customers lined up as far as the eye could see to buy Tesla branded goods as long as the firm could produce them quickly enough and in great enough numbers.
That is certainly an enviable position to be in, but is it really true? If so, how long can it last?
Competition Slow to Catch Up... For Now
Introduced in 2012, the Tesla Model S took the world by storm. With comfort and convenience features similar to the top models from luxury automakers Mercedes Benz, BMW and Audi, it also sported performance that rivaled (and in many cases exceeded) even the highest-end models from these venerated companies.
Accelerating from 0-60 in 5.5 seconds put the original Model S in the company of the flagship sedans from BMW, Mercedes Benz, Audi and Lexus. Having the batteries for its electric motors in the floorplan under the passenger compartment gave the Model S an unusually low center of gravity which made for exceptional handling as well. Subsequent versions offered incremental performance upgrades all the way up to the current P100D “Ludicrous” upgrade which gets to 60 in 2.4 seconds – the quickest sedan in the world.
With sleek attractive styling, a smooth and extremely quiet ride and blistering performance - along with the cachet of driving an efficient, clean electric vehicle - the Model S became the go-to choice for executives and celebrities alike, handily outselling the BMW 750i, Mercedes 550S and Audi A8, and Lexus LS.
With a range between 250 and 315 miles (and an ever-expanding network of free Supercharger stations), the Model S proved more than capable of most day-to day driving needs.
Though it’s only been released in limited numbers so far, the $35,000 Tesla Model 3 has a waiting list some 400,000 strong and promises to do to the mid-range auto segment what the Model S did to Luxury. There is clearly huge demand for electric vehicles for both economical and environmental reasons, especially when they are packaged as smartly as the Tesla cars.
Surely the other automakers won’t sit still for long though…
Who’s the Competition?
There are already several fully electric cars being sold in the U.S. So far, they are all compact cars. Weight is the enemy of electric power in terms of range, so lighter cars get more range out of the same battery power. Here’s a quick rundown of what’s currently available:
Nissan Leaf – Base price $30,680, range – 110 miles
Ford Focus EV – Base price $29,995, range – 100 miles (F - Free Report)
Hyundai Ioniq EV – Base price $29,500, range – 110 miles
Volkswagen E-Golf – Base price $30,495, range – 125 miles
Kia Soul EV – Base price $32,250, range – 91 miles
So far, the offerings all look pretty similar. They are all fairly simple, efficient “grocery-getter” type cars that run on efficient battery power. There’s one new entrant that’s a little different though, the Chevrolet Bolt. Introduced in 2017, the Bolt costs a bit more than all the others, with a base price of $37,495, but it also boasts a range of 238 miles and a zero to 60 time less than 7 seconds. It’s not quite a Tesla Model 3. It’s not as stylish or fast and its range is still a bit less than even the base Model 3, but it’s an indication the General Motors (GM - Free Report) , is definitely getting closer to Tesla in the mass-market segment. Importantly, we know that when GM makes a car, they can essentially produce as many of them as the market demands, unlike Tesla.
As for the Luxury segment (and in the auto industry high price generally equals high margins), Tesla’s competitors mostly seem to be biding their time.
Jaguar and BMW are both developing fully electric technology for their flagship big sedans, but neither has announced concrete plans for a specific model and its widely believed that neither will have a model in production before 2022.
Audi has an electric A8 in development with a 2022 target date for release, but it’s rumored that its partner Porsche might use the same technology to have an all-electric big sedan, similar to the current Panamera, on the market by 2020.
The most immediate competitor to the Tesla Model S is the upcoming Mercedes Benz EQ-S. As part of Mercedes Benz’ goals to introduce 10 new “electrified” (meaning a combination of hybrid and fully-electric) models by 2022, this week they introduced the flagship EQ-S, aimed squarely at the Tesla Model S. Similar in size, range and price, this is likely to be Tesla’s closest competitor in the luxury class.
It makes sense to point out that Tesla has been selling the popular Model S for six years and the closest competition is still 2-4 years away. That’s quite a head start.
While electric vehicles seem likely to grab significant market share in the consumer market by providing incrementally better performance and efficiency, Tesla and its competitors stand to completely revolutionize the market for heavy trucks. With semi trucks rolling all over the U.S and the world every day (many logging hundreds of thousands of miles a year) virtually every operator would love to utilize trucks with significantly lower maintenance and fuel costs. The fuel savings alone could be $100,000/year or more for a long haul truck, potentially turning the Diesel industry on it’s head.
Smaller electric trucks are already widely in use, especially in Asia, mainly for daily-route duty like garbage pickup and food service delivery.
There are three main apparent competitors to Tesla’s planned all-electric semi.
Diesel giant Cummins (CMI) unveiled its own all electric truck last year just before Tesla’s big unveiling. It’s offering is slightly different in that it’s a Class 7 vehicle, suitable for daily use as a delivery vehicle, rather than long hauls. Cummins also hinted at a potential future upgrade to a range in the area of 300 miles.
Startup company Thor Trucks is attempting to beat the Tesla semi to market with a similar Class 8 (long haul, 80,000-pound payload) vehicle with a range of 300 miles. Dubbed the “ET-One”, prototypes look similar to the Tesla, and the announced base price of $150,000 is also comparable. With the huge potential market for semis, the growing pains associated with scaling production will be the biggest hurdle for this tiny new company.
Salt Lake City-based Nikola has taken dead aim at Tesla with its planned One Electric semi, slated for production in 2020. (Even the company’s name is a play on Tesla’s – Nikola Tesla, get it?) Their offering is powered by a combination of electric power and a hydrogen fuel cell, which promises to significantly expand the range beyond an all-electric powerplant. Nikola also recently took the publicity-grabbing step of returning customer deposits it had already taken while preserving those customers’ place in line, declaring that they never use customer deposits to fund operations - a clear dig at Tesla.
(See part 2 here for a discussion on Tesla’s reliance on customer deposits.)
Solar and Energy Storage Solutions
With it’s acquisition of Solar City, Tesla became more than just an automaker. Though the merger was overwhelmingly approved by shareholders, Tesla was broadly criticized in the media for the assumption of almost $3M of debt – and from a company that was burning cash ever faster than Tesla.
The solar panel market is fiercely competitive. U.S. manufacturers have experienced low retail prices and a glut of supply thanks to foreign competition. Specific competitors are literally too numerous to name individually. A 30% tariff imposed on imported panels in January 2018 appears to have done little to improve the fortunes of domestic producers. (Interestingly, the tariff on imported washing machines, announced at the same time, got much more press coverage.) Tesla would be foolish to go head to head with the market on commodity items like panels.
Tesla is taking a different tack in the energy market and it’s consistent with the way they’ve approached automobiles.
The basic idea is that solar power and power storage are a perfect fit with electric cars. They’re betting on Tesla auto customers becoming Tesla power customers. The premise is simple, an affluent customer buys a Tesla car, covers her roof in Tesla panels, uses the sun to charge that car (and power the rest of the home) and stores power when the sun is not shining in a Tesla Powerwall.
It’s certainly a compelling narrative, but how often will it actually happen? That certainly remains to be seen. Solar panel installations fell 17% in 2017 over the prior year after 5 straight years of gains.
Tesla generates less than 10% of its revenues from energy solutions, so for the moment, these plans are definitely taking a back seat to vehicles.
Tesla has consistently beaten its competition to the punch, partly at the expense of manufacturing prowess. To stay relevant, they're going to have to keep beating them and get better at turning great ideas into real-world products.