The Model 3 Could Help Tesla Win The European Market

  • Tesla has not achieved the same level of success in Europe as it has in its domestic market.
  • This is mainly because Model S has had to compete with well established global luxury brands.
  • Model 3, due for production in late 2017 could, however, change that.

If Tesla (NASDAQ:TSLA) is to achieve its goal of becoming a truly global maker of Electric Vehicles (EVs), it will have to follow in the footsteps of traditional automakers which make most of their sales outside the U.S. Right now Tesla’s sales by geography exhibits an odd balance where close to 60% of sales come from the domestic market with the rest coming from all other global markets combined. In 2015, Tesla Motors sold 50,446 Model S vehicles. 58.9% of those sales were made in the U.S. with Europe contributing 35.7% sales. U.S sales grew 59.4% Y/Y in 2015, slightly faster than in Europe where sales grew 54.8% to 17,988 units. In sharp contrast, General Motors (NYSE:GM) sold 9.8M vehicles in 2015, with the U.S. sales coming in at 3.6M units, or 36.7% of total sales and the rest coming from other global markets.

This is not exactly a fair comparison since we are essentially comparing a single model vs. multiple models in different classes. But at least, it gives a general overview of how Tesla’s geographical sales differ widely from those of conventional automakers. Having multiple models to exploit different market segments and price points is, of course, one reason why companies like GM have been able to successfully exploit global markets.

However, this line of argument is only partly true since Model S has not been doing very well against higher-priced gasoline luxury cars in key markets such as the Mercedes-Benz S-Class sedan in Germany. BMW i3 an all-electric car outsold the Model S in the country by almost 30%, though BMW i3’s price tag of US$46,400 in Germany is considerably lower than Model S’ entry price of 70k. The German market is known to be notoriously hard to crack for foreign automakers since the country’s own luxury auto industry is highly developed.

Meanwhile, Norway remains Tesla’s second biggest international market after the U.S. Tesla sold 4,039 Model S units in the country in 2015, or 9.4% of total sales. This has a lot to do with the generous subsidies and perks that EV owners receive in the country, including free parking and charging, as well as driving on bus lanes. But sales in Norway appear to have hit a plateau since Tesla sold nearly the same number (1 less) of Model S units in Norway in 2015 compared to 2014 when it pushed 4,040 units.

Tesla though achieved some notable successes in Europe in 2015. The Model S managed to outsell two of the three most popular luxury brands in Europe namely the BMW 7 Series and the Audi 8. Tesla also came close to the category leader Mercedes-Benz S-Class. The general consensus is that Tesla will have to collaborate with top German brands to achieve success with Model S in Europe.

Model 3 Could Be The Linchpin For Tesla In Europe

Tesla may not have to rely so heavily on the Model S to break into the European market. The Model 3 is slated to become Tesla’s first mass-produced car and will go head to head with the less competitive small luxury car sedans in Europe. The Model S has had a tough time competing with Europe’s top luxury brands mainly because this is a highly developed niche market with global brand icons. Model 3, at $35k a car, might be Tesla’s answer to cracking the European market.

Meanwhile, Tesla plans to continue expanding its European footprint and will debut in Ireland sometime this year, according to a tweet from Elon Musk. Tesla has little presence in some European countries like Ireland and can continue its plans to build and grow its supercharger network. The company has already managed to build a pretty impressive supercharger network across Europe that you can view on Tesla's site.

Ultimately Tesla has lots of ground to cover before it can become a global EV manufacturer. All eyes will be on the Model 3, due for delivery starting late 2017, and how it performs in key European markets. Tesla has some base infrastructure in place and the Model 3 could change the game for Tesla.

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