Why I'm Bullish on Tesla.

Understanding The EV Market > Tesla et al

To understand why I'm a Tesla bull (and hopefully not just full of the same) it is important to understand an important aspect of the automotive EV market.  We need to consider a survey of over 14,000 respondents done by Autolist regarding how much electric-car range is enough.  The respondents can be broken into two main automobile consumer groups of interest.

The Autolist survey first suggests that 3.7% of the US population "would not hesitate to buy an EV" even if the rated range is only 100 miles.  If we do the math we can estimate that over 9 million people in the US would not hesitate to by an EV with a 100 mile range.  The only things holding these consumers back from owning an EV is perceived vehicle desirability, vehicle affordability and the opening up of their individual vehicle replacement window.

The Autolist survey also reveals an important truth, for some consumers range matters.  The second group of interest are these consumers who DO care about range and who would be more likely to buy an EV if the rated range is 300 - 500 miles.  According to the Autolist survey, this group makes up over 81% of the respondents.

There is a third group that I want to bring up.  Being the curious marketing person that I am, I conducted my own little survey.  Even though my survey was an extremely small convenience sample, curiously enough my findings closely coincided with the findings of the Autolist survey.  It also, however, revealed a third group of automobile owners.  Those ICE owners who think they will NEVER EVER own an EV.  Because of the nature of my little survey I can only guestimate this group to be possibly greater than 10% of the car buying population.

"Tesla Is Doomed", Really?

From time to time some Tesla bears and analysts have totaly poo-pooed Tesla's ability to sell EVs.  I can only guess that they neither did any proper market research nor did they "get the memo" about research already done.  Those naysayers have failed to take into account the first group revealed in the Autolist survey, current ICE drivers who are pro-EV and range indiscriminate, or perhaps they have chosen to ignore the data in order to spin a story that supports their thesis.

One infamous case is a bull-bear face-off in early August 2018 between Galileo Russell (Hyperchange TV) and Mark Spiegel.  Mr. Spiegel infamously said "The market for the Model 3 is no where near what people such as Gallileo think it is."  And also, "They're actually only delivering maybe 10,000, if they get lucky 12,000 Model 3's a month now, and same thing in August."  That August, Tesla delivered over 17,000 Model 3s and then in September, Tesla delivered over 22,000 Model 3s.

We can guess that Mr. Speigel must have had no idea that there were over 9,000,000 current ICE vehicle drivers in the US eager to buy an EV, even with a range of only 100 miles.  Mr. Speigel also ignored a survey done earlier that year by AAA in which 20% of respondents said that their next car would be electric.

One of the factors restraining this group from owning an EV today is vehicle desirability. This is very a subjective thing.  Judging from Tesla's total sales to date I think we can safely say from that Tesla vehicles score well in this area.  

Looking at this pro-EV group we would think it likely that there are some among the group who may prefer to buy a non-Tesla brand EV.  Of course, not all of them are ready to replace their current vehicle today.   Over time, a given percentage of them will enter the market each year as their replacement window opens up.  With such a large number, however, we would think that there should be room enough to have more than one brand or model of EV selling 10,000+ cars a month.  

We have to wonder why other auto makers have not seen the volume of sales to date that the Model 3 has enjoyed.  Answering this question that could require some good market research.  But I believe that we can attribute perceived desirability as one factor.  Desirability includes the user interface and driving experience, something which Tesla vehicles score very well on.  In order to attract these buyers the value proposition for the vehicle still needs to be there, it has to be better than the ICE alternatives.

If there is any possibility at all for the Audi e-tron and other new EV entrants to compete with Tesla, it will have to be within this range indifferent market segment.  From initial appearances, several of the new entrants may be considered compelling cars.  However, all of the new entrants coming to the EV market over the next two years have ranges of under 260 miles, most with a ranges of only around 200 miles.  The only hope these new entrants have of gaining customers is within the low range minded crowd.  If these new EV entrants do score well in desirability, then perhaps they will see strong sales, if their offerings are considered affordable. The price / value proposition must be there.

At any rate, I think we can safely guess that Tesla will continue to capture it's fair share of this market going forward.  If even 15% of these buyers become Tesla fans, that represents over 1 million potential Tesla customers over the next several years from this group alone.  I see this as one rational why Tesla has a bright future.

Tesla Model S

The Affordability Hurdle

From personally talking to a few people in this group I discovered that another perceived obstacle holding some people back from buying an EV is affordability.  Just as with desirability, affordability is subjective.  Within this group of 9,000,000 people we most certainly expect to find people of varying income levels.  Some few will see a $100,000 performance car as quite affordable.  While others would struggle to make payments on even a $35,000 car.  We can look to the sales of early Tesla Roadsters as an example of the high end.  It's relative success points to the idea that if someone makes an awesome EV there are people who will buy it, even if the range is limited.  I do suspect though that a great bulk of the people in this eco-minded group are in non-luxury income brackets.  As auto makers are able to bring to market desirable lower cost EVs many more of these EV fans will amend their ICE ways and go electric.

So, What Is An Affordable EV?

This question could be answered with some full market surveys and market research.  It might be of interest to discover the percentages of this group that fall into different price points.  However, the adage that consumers vote with their dollars is one easy way to arrive at a simple answer.  If we look at the top 10 best selling non-truck passenger vehicles for 2018 we see that the average SRP for those vehicles was about $24,000.  Because of gas and maintenance savings, EVs can currently command a sizable premium.  I think that we can quickly make the conclusion that a compelling EV priced around $28,000 would be a great hit, even if it had a limited range of say only 120 miles.  We would think that a large number of the 9 million range indifferent people would find this price point affordable and be very interested in buying one.

Hopefully. in the future car, makers will bring to market desirable, more affordable EVs and market them in a way that captures this low hanging fruit, thus growing the EV market.  

I'm uncertain that Tesla will ever offer a $28,000 vehicle, even if it had only a 120 mile range.  Tesla vehicles are built durable, ultra safe and feature rich.  I'm afraid that trying to strip down a Tesla vehicle to that price point might be tantamount in Tesladom to selling a horse in 1919.  However if they could fit all the tech and safety in such a vehicle, Tesla would be guaranteed a huge following.  We might call it the Model C.  But more than likely, someone besides Tesla will have to some day build and offer this vehicle.

And what about an EV under $20,000?  Who could do that?  I have to wonder if General Motors or Toyota could create a $20,000 vehicle with a 120 mile range.  I look to the Chevy Spark which has an SRP of $13,220.  I am a marketing person and only a wana-be engineer type, but I can't help but think that even if such a vehicle got only 40 MPX(kWh) and so required a 30 kWh battery pack, it should be possible to still come in under $20,000.  I seriously doubt that Tesla will ever produce a vehicle in this price range.  If any automaker ever does sell such vehicle though, the survey numbers suggests that they would have buyers stringing around the block to get one.

I should point out one caveat about this group.  Consumer are a strange lot.  Their behavior is not always in line with surveys results.  At times consumers may say one thing on a survey, but when the situation actually arises they choose differently than their survey response.  While some respondents have said that range is not a big factor in their buying decision, it is possible that when put to it they may actually choose a little more expensive longer range EV.  Just the same however, the Autolist survey does give us a good general guideline.  It strongly suggests that there is a sizable population of current ICE owners who will buy an EV when the time is right as long as the EV is perceived as desirable and it is affordable to them, even if the battery range is limited.  

Tesla Model X 100D Trial

Range Sells, The Lack of It Does Not

The second group that we need to look at are those for whom range does matter.  According to the Autolist survey and my own primary research, this group comprises a much larger segment of the automobile buying population, possibly over 75%.  These people can be considered propulsion indifferent.  Or to say, they don't really care what powers the car, as long as it does what they want.  If one solution does it better and with less ongoing expense, they'll go with that.  

Some analysts talk about the EV market as if it is a very tiny slice of the overall auto market.  Perhaps these analysts are looking at the 3.7% portion of the population who do not care about range.  Perhaps they consider that the true EV market.  If so, then I can understand why they talk as they do.  However, the real truth is that there is a very large segment of the population who are willing to switch to an EV if the price/range value proposition is right for them.  The amount of EV range greatly influences this group's likelihood of ownership.  The greater the amount of affordable range, the more likely they are to switch to an EV.

As we look at the survey results, we see that every incremental increase in affordable range adds new buyers to the EV market, new buyers who would not have previously considered buying an EV with less range.  My own primary research supports this and suggests that this expansion of buyers continues until 500 miles of range is reached, at which point it is quite nearly a certainty that over 75% of the population will buy an EV (when the timing is right and as long as the vehicle is desirable and affordable to them).

In the Galileo Russell, Mark Spiegel exchange sighted above, not only did Mr. Speigel not consider the millions of ICE drivers from the first group who are very favorable to EVs, but additionally he overlooked that the premium Model 3 offers over 300 miles of range, which expands its market to include buyers from this second consumer group.  With its range of over 300 miles the premium Model 3 is able to tap into the buyers who would not hesitate to by an EV if the range is at least 300 miles.  I suspect that this segment adds many sales to Tesla's delivery numbers.

Tesla Automotive's Core Mission

Tesla's automotive group's mission is to "accelerate the world's transition to sustainable transportation" or to put another way to be an ICE killing machine.  Tesla has a history of incrementally increasing range over time.  It will need to continue this trend in order to fulfill it's ultimate mission.  As Ben Sullins of Teslanomics has said, "You have to look and see what it would take for and electric vehicle to compete with the range and convenience of a gas powered car." 

Tesla will fulfill its mission to the fullest extent when it can offer affordable 400+ range vehicles.  At that range Tesla no will longer compete with makers of limited range EVs (they're no longer in the same class), but instead will compete very effectively head-to-head with ICE vehicles.  As I've mentioned, each increase in range opens up the market to new buyers.  We've already seen some ovations of this.  Tesla's vehicles have become top sellers in their respective luxury categories.  They will continue to be top sellers and grow the EV market further as the affordable ranges of these vehicles continue to increase.  I can foresee a future day when Tesla offers a standard trim Model 3 with 300 miles of range and premium variants with 400+ miles of range.  

I'm sure some EV enthusiast reading this will argue that a 400+ mile range EV is just not needed.  Average daily commutes are only 30 miles.  But I suspect that when this second group of ICE owners go to buy a new vehicle they feel the way I do.  When they plunk down over $35,000, they want the automobile to be more than just a single use vehicle.  They want the car to be able to handle ALL of their driving needs, including ones that they may even only hypothetically have.  Perhaps a brand new vehicle buyer from this group will never take even one road trip in the vehicle they are signing papers for, but they want it TO BE ABLE TO do so comfortably and conveniently, just in case.

Usable range matters.  Very few people, besides irrational people like me, drive their ICE cars all the way to empty?  Many folks refuel at 1/4 tank or more.  And so it is the same with EVs.  Yes, the Autolist survey suggests that 300 miles of range is great for a lot of people.  But as the rated range goes to 400+ miles even more folks will convert to electric.  Consider this fact.  Of the top 20 best-selling vehicles for 2018, most had a rated “range” (miles on a full tank) of 400+ miles.  From a marketing perspective that alone tells us something.  Add to that the Autolist survey and my own little market research and we have a clear picture that down the road greater affordable range will be needed (more than 300 miles).

One real life example of this is Alex Guberman of E for Electric.  He has a Tesla Model S and yet he purchased a Chevy Volt. He did this because his Model S could not make his weekly commute without stopping for a charge.  This stop added too much time and inconvenience to his drive.  Thus the decision to stay mostly electric and yet have greater range when needed.

Tesla Model 3 Performance

Affordability Again

Again, as with the the first group discussed, affordability is subjective.   I think however that Tesla's premium vehicles are now priced correctly within their respective classes.  They have the right price points to compete against their ICE counter parts.  For Tesla to continue to compete effectively going forward and continue to grow its market share all Tesla needs to do is keep the vehicle prices about where they are today and increase the effective range of each vehicle as it becomes feasible.  Tesla's future 400+ mile range vehicles will secure its place in the automotive industry.

I think we can say with confidence that a $28,000 EV with a 400-mile effective range would be a smashing hit whether offered by Tesla, or any other auto maker.  We could expect to see long lines of people signing up to buy a such a vehicle.  I personally believe that there is the technology to create a $28,000, 400-mile range EV right away.  A willing automaker could do this simply by employing a high efficiency long range APU REx.  I think there is at least one strong rationale for doing so now and continuing to do so even when battery cost drop.  But that's a topic for another article. 

The Tesla Demand Cliff and "Tesla Killers"

These days the Tesla bear camp talks out of two sides of it's mouth.  On the one hand some naysayers talk about the demand cliff that Tesla is facing.  The demand for Tesla's EVs is drying up.   But on the other hand Tesla is going to face stiff competition from the likes of the Audi e-tron and others.  These two claims are contradictory.  If there is an EV demand cliff, which from the surveys we can clearly see that there is not, then how could it possibly be that the alleged competition will not experience this same cliff?  Why should only the Tesla brand EVs be effected?  The more likely truth is that the competition may discover that THEIR offering is, too little too late.  Tesla has been selling high end EV's with over 200 miles of range for over eight years.  Now along come legacy automakers that think they can compete against Tesla with expensive limited range EVs.

Now, I'm not saying that the legacy auto makers will not gain any sales.  From outward appearances I think we can say that several of the EVs coming on the market from legacy automakers score well on vehicle desirability.  And, there certainly are and will be those people who are brand loyal.  They would much rather buy an EV that is an Audi, Volvo or BMW.  But once those brand loyal customers have been tapped, legacy maker may discover that they're unable to make sales in any great volumes.  At least until they can increase their EV's ranges.  Given the choice of a $75,000 vehicle with 200 miles of range and a $78,000 vehicle with 285 miles of range, I would think more people would be inclined to go with the $78,000 vehicle.  The value proposition is better with the $78,000 vehicle.  The cost per mile of range is lower.  Very possibly legacy auto makers will discover that the high-priced 200-mile-range cow has already been milked by Tesla and is drying up.

We can see that the two automobiles are not in the same class.  While legacy automakers are trying to time travel backwards hoping to pick up market share from EV enthusiast, Tesla has moved on to the broader general automobile market.  I think Tesla's three premium vehicles are presently priced right within their respective classes.  For Tesla to continue to compete effectively and continue to grow its market share, all the company has to do is keep the vehicle prices about where they are today and as feasible increase the effective range of each vehicle.  

The only way that other automakers will be able to truly compete is to follow suit and increase the effective range of their product offerings.  Or in other words to be able, and willing, to cannibalize ICE sales.  VW group is making ovations, which suggest that they are making that commitment and in a few years will offer desirable, affordable vehicles with increased ranges.

2020 Tesla Roadster

The Flood of EV Competition

If the whispers in the winds are true, the good news is that the flood of affordable longer range EV is unstoppably coming.  There is a huge economic incentive to create the next-gen lower-cost batteries.  Battery improvement technology is being pursued by so many entities that it seems inevitable that it will happen and perhaps sooner than some people think.  Catherine Wood of ARK Invest predicts that the cost of an EV will drop below that of a Toyota Camry by the end of the year 2022.  Once competing compelling EVs can add significant affordable range, the demise of ICE vehicles will be certain.  It will be the end of the ICE age.  

Entering the EV World Kicking and Screaming

The final group to consider is the 10% or more of the population who are hardened fossil fuel fans, some 20,000,000 people.  I was surprised to talk to folks who said that they would never ever drive an EV no matter what the range.  From my observations, I'm inclined to dub these folks the F-150 crowd.  They can not see themselves ever driving an EV. These will be the late late late adopters.  They will only switch when gasoline stations are few and far between, and found mostly only along the freeways.  They will only switch when new ICE vehicles are one and a half to two times as expensive EVs.  They can not imagine a world with one-tenth the number of gas stations that there are today.  They can not imagine a world where you're surprised to hear a loud noisy truck.  They can not imagine a world where smelly automobile fumes are in the past.  But imagine it or not, that is the world they and all of us are headed for.

The 'ish" Part of Being Bullish

While I am a Tesla fan, I recognize that Tesla is not impervious to economic storms and consumer whims.  Tesla continues to operate at risk.  As Eric Basmajian pointed out in a recent article, an economic downturn could possibly spell doom for Tesla.  Many economy watchers are forecasting a recession about 2020.  This could be a hard time for many businesses, including the automobile industry.  This does beg a question, if Tesla falls on especially hard times along with other automakers, would they receive a bail out along with the others?  Or would they be left alone out in the cold?    Then, on the other hand, it is possible that Tesla will be in a better position to weather the storm than the competition.  If Tesla can continue to lower costs and improve margins they may be more competitive and actually benefit from an economic downturn.  In addition, if Elon Musk has his way we will enter into a robo-taxi economy in 2020. That could totally change the automobile landscape.  Instead of paying for transportation up front, many folks could opt for a ride sharing pay-as-you-go model and Tesla would be uniquely positioned to succeed in such a down turned environment.

I Musk, I mean must close with a disclaimer about this article and its musings about the automobile EV market.  The survey findings and conclusions here are all based on the current market environment.  If we do enter into the robo-taxi economy, that change could possibly shift everything.  Consumer preferences and mindset could begin to morph.  I think it's improbable for anyone to precisely predict what impact that change will have on the auto market, trying to do so is pure conjecture.  However, it most likely it will have an impact of some sort and cause some changes to consumers' mindsets.  We will have wait and see exactly how it plays out.  New market research should be done as we go through the shift in order to understand where consumers are at.

I hope you can now see where I'm coming from.  The fact that I talked to over 50 random ICE owners first hand about their opinions about EVs gives me confidence in the Autolist survey results and a strong opinion about Tesla's positive future potential.  I hope you can see why I say let the bulls rage on.