Will Traditional Auto Makers Muddy The Waters For Tesla?

  • General Motors has launched Chevy Bolt, an EV targeted at the mainstream market, a few months before Tesla unveils Model 3, its first mass market EV, in March.
  • Bolt will sport a price point quite close to Model 3.
  • Several other traditional automakers have announced plans to significantly expand their EV footprint.
  • Will traditional automakers muddy the waters for Tesla's ambition to become a mass producer of EVs?

Tesla (NASDAQ:TSLA) finished 2015 successfully, after the company managed to meet both Q4 and full year delivery targets. Now Tesla has set its eyes on its next target: the launch of Model 3, its first mass market EV. Tesla plans to unveil Model 3 in March 2016 although production will not commence till 2017.

Traditional auto manufacturers, notably General Motors (NYSE:GM) and Ford Motor (NYSE:F), have announced their intention to significantly expand their EV footprint. General Motors has unveiled the Chevrolet Bolt at the Consumer Electronics Show, or CES. Chevrolet Bolt appears to be a thinly veiled attack by GM on Model 3 since GM is trying to position it as a mainstream EV.

Bolt will have a driving range of 200 miles, considerably lower than the 250 miles range for Model 3. But it’s Chevrolet Bolt’s price point that’s acts as a dead giveaway: GM says that Bolt will retail at $38,000 which will come down to just $30,000 after federal income tax rebates. Tesla has indicated that Model 3 will retail for around $35k, which implies the two mass market EVs will compete head-on.

Tesla has responded to GM’s announcement in stride saying:

"Commitments from traditional car makers to build electric vehicles advance Tesla’s mission to accelerate the advent of sustainable transportation. We hope to see all those additional zero-emission vehicles on the road. "

Meanwhile, Ford Motors recently revealed its plan to invest $4.5B in 13 EV models before 2020. How capable are these traditional automakers of thwarting Tesla’s ambition to become a mass producer of EVs?

The fact that GM has unveiled  its new mass market EV around the time that Tesla will launch its own clearly tells you that the company recognizes the threat that Tesla poses to traditional auto manufacturers like itself. And, GM is giving back as good as it got from Tesla. Tesla was the first to open fire when its CEO Elon Musk announced about a month ago that it harbored ambitions to become bigger than GM. Now the difference between the two companies could not be more stark: Tesla sold 50k vehicles in 2015 compared with GM’s ~10M. Ok, maybe a fairer comparison would be between Tesla’s EV and those by GM.

GM sold 15,393 Chevy Volts in 2015. Meanwhile Nissan sold 17,269 Leafs while Ford sold ~16k EVs. So basically Tesla sold about the same number EVs as the three largest automakers combined, never mind the fact that Tesla is a high-end EV manufacturer. A base Model S sells for 70k compared to $33k for a Chevy Volt and 17k for a Ford Focus. A Toyota Prius sells for 24k.

Tesla’s sales numbers defy logic and just don’t seem to make sense. The company’s EV sales jumped 40%+ in 2015 when everyone else’s crumbled. GM’s EV sales tumbled 23% Y/Y, Ford’s were down 25%, and Toyota’s declined 12%. Industrywide EV sales excluding Tesla’s declined a jaw-dropping 20% as ultra-low gas prices continued to wreak havoc on the burgeoning industry.

I think traditional EV manufacturers are the ones that should be worried about Tesla’s intrusion into their space and not the other way round. Tesla simply enjoys too much brand recognition in the EV space and nobody else even comes close. Otherwise how do you explain a niche player outgunning three giant companies with plenty of financial wherewithal? Tesla has a lot going for it and they are going to work in its favor once it launches Model 3.

Tesla has been rapidly expanding its network of supercharger stations while its giant Nevada battery factory started cranking out grid batteries during the fourth quarter of 2015. Meanwhile, battery prices keep falling as battery manufacturing technology keeps advancing. This will help Tesla to keep lowering its price points to a level where it will eventually be able to compete with its gasoline-powered counterparts.

Traditional auto makers have been unable to challenge Tesla’s lead in the EV market at a time when Tesla is exclusively a high-end niche player. It’s only going to get murkier for them when Tesla starts lowering its sights.

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Comments on this article and TSLA stock

You're article is spot-on. In addition, although Telsa's Q3 numbers didn't meet Wall Street's expectations - the stock still continued to rise, I believe, due to 'strong growth potential.' Love your site!
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