Tesla Has “Near-Monopolistic” Opportunity In Electric Vehicle Market
Tesla’s monumental investment will prove legacy automakers’ tactics unfit when it comes to the imminent electric vehicle market.
A German analyst told Forbes that traditional automakers’ attempts to save money and cut costs, while Tesla is spending heavily toward the future, will give Tesla a “near-monopolistic opportunity” to gain market share.
Alexander Haissl of Hamburg, Germany-based Berenberg Bank, reported on Tesla and its closest ‘would-be’ rivals. He believes that none stand a chance, however, Daimler is furthest ahead, followed by Volkswagen Group. BMW appears indecisive as of late, and Ford and FCA don’t fare well. Even, General Motors, with its Tesla Model 3-competing Chevrolet Bolt, doesn’t really have its head in the game. Haissl wrote:
“[Manufacturer] complacency about electric vehicle (EV) technology is worse than perceived. Despite more talk of developing EVs for mass-market adoption, a lack of real action and strategic commitments betray their underlying conviction, with no clear pathway to high-volume EV production before the mid-2020s.”
He told Forbes:
“Tesla will be given a near-monopolistic opportunity to gain market share and outcompete the incumbent automotive industry.”
“To contrast Tesla with even the most forward looking (manufacturers), we estimate Tesla will invest $32.7 billion over the next 5 years – roughly 40% more than Daimler and Volkswagen combined have committed for their EV projects.”
Haissl reminded that Tesla also has a substantial advantage in the EV battery market, due to its Gigafactory. This is not something that legacy automakers can make up overnight. Haissl continued:
“Tesla/Panasonic continue to exhibit a clear advantage on cell and pack technology compared to all peers, on chemistry, cooling and cost. Clear visibility about high-volume cell-sourcing strategies continue to elude traditional manufacturers, although we expect announcements for large facilities to eventually emerge to resolve the key issue of battery supply constraints.”
Despite Haissl’s sensible analysis, others don’t support this situation. Tesla has undergone years of scrutiny due to its heavy spending, lack of large-scale production, seemingly overrated market cap, and disruptive ideas and practices.
The Center of Automotive Management in Bergisch Gladbach, Germany believes that battery shortages could initially hinder competing German automakers, but they will catch up. Likewise, The Center for Automotive Research at the University of Duisburg-Essen warns that Tesla should watch out for German competitors.
The Berenberg Bank concluded:
“More drastic measures to create shareholder value may need to be considered – including, for example, spinning out their EV divisions to better focus on technology development and improve capital allocation. However, this would first require a transition to dedicated production lines rather than integrated production.”
For our money, we well can believe Tesla could have a “near-monopolistic” holding on a segment of the EV auto market (as it does already in the premium/luxury segment)…but not the largest, or the entire market by any means.
Why? It is pretty simple, Tesla has already stated that the upcoming Model 3 is as “low” as the automaker wants to go down the affordability food chain, and with an estimated average selling price of $42,000 (as per CEO Elon Musk), that is a price higher than 90%+ of the cars on the road today.
Put another way, a Tesla is never going to lease for $49/month like the Fiat 500e occasionally does in California.
And the number of these “low end lease deals” is only gaining in volume (check out Charge!!!/EV-VIN’s pretty awesome listing of current deals here), while at the same time, the EVs themselves are improving – we are already starting to see the Chevrolet Bolt EV lease in the upper $200s/month. No matter how much someone wants a Tesla, if they have a maximum budget of $250 a month for a new EV, they aren’t getting one.
The report also outlined other traditional automakers’ current strategies (via Forbes):
- Mercedes-Benz – “High investments, but strategy for battery cell sourcing is not the most competitive”. Mercedes has announced total investment of 10 billion euros ($11.4 billion) in electric engineering and its EQ brand, and the same amount in battery capacity. This is the highest amongst the traditionals. Battery cell sourcing is not the most competitive.
- Volkswagen – “Larger investments into battery capacity could be necessary”. To supply its electric fleet by 2025, VW needs about 150 gigawatt hours of battery capacity a year, and capacity planned so far isn’t enough. One major advantage for VW is its huge scale for better economics.
- BMW – “risk of making the same mistake twice”. BMW’s i3 made the company a front-runner because it was designed from scratch to be electric. Its stance has almost been reversed, and it has slipped into wait and see mode. “Wait-and-see strategies can only be explained by hoping for better battery technologies, as it would allow existing platforms to be retrofitted with batteries that give significantly stronger range performance. This in turn could reduce the need to invest in developing dedicated platforms. This is risky if the EV market grows very quickly.” Tesla threatens its core market. BMW’s line-up looks thin with Mini-E in 2019 and X3 in 2020. “Overall, we see the risk that BMW is making the same mistake twice on EVs – being too early with the i3, and now basically giving up the strategy of dedicated models/platforms and production concepts”.
- Renault – “Well positioned in mass market offering”. Renault Nissan was a first mover with the Zoe and Leaf, with good battery cell sourcing from LG Chem. But its batteries produce less energy than Tesla/Panasonic.
- FCA – “EVs to remain niche”. Like Ford and General Motors EVs are likely to be just a niche.
- Ford – “Investments focussed on plug-in hybrids, but no EV strategy”. The current EV, the Ford Focus electric, is not competitive on price versus range and it looks unlikely that Ford will catch up in the foreseeable future. Unless Ford materially increases its efforts on the pure EVs, the gap is expected to widen.
- General Motors – “Chevy Bolt solid but no clear EV strategy”. The Bolt is not enough to retain market share once competitors launch new models. GM’s focus has been to keep costs and risks low, which explains “…why the battery pack is supplied by LG Chem and entire drive-train by LG Electronics. From our perspective GM does not have a clear strategy on EVs…..”