Road Ahead

Tesla Faces Competition on All Fronts


Tesla will have trouble making profits when its only competitors are pet projects of major automakers that care about image and volume and expect to lose money.

If you think electric and plug-in electric vehicles are just for nerds, spend a weekend in a BMW i8 PHEV. As an automotive journalist, I drive a lot of sexy cars, but I can’t remember one that attracted more attention.

The i8 isn’t just fast and gorgeous; it comes with all the perks of a fully electric vehicle, such as access to carpool lanes and special parking.     

With Tesla challenging its reputation for engineering great cars, BMW clearly gave the $136,000 i8 its A-game, as well as the transformative $41,000 i3. Both cars represent huge development costs and are expected to lose money, but BMW doesn’t care. It has to sell EVs to meet current and future emissions rules and it needs the stock-pumping respect from Wall Street that technologically advanced vehicles deliver. So does Audi, Porsche, Mercedes-Benz and every other major automaker on the planet.

This spells trouble for Tesla. The electric carmaker had a great first quarter, with global sales up 55%, to 10,300 units. But it will have trouble becoming profitable when its only competitors are  pet projects of major automakers that only care about image and volume and expect to lose money on them.

When Tesla introduced its much lauded Model S in 2012, it created something traditional automakers thought impossible: an electric luxury car that wealthy consumers aspire to own, enthusiast magazines rave about and Wall Street investors worship.  

On top of that, it developed an innovative battery strategy that allows the Model S to boast a range of up to 270 miles (435 km), more than three times that of most other EVs. It also is challenging the long-established dealer franchise system with company owned stores.

The downside for Tesla is now that it has shown there is an aspirational market for EVs that can boost stock prices if not make money, the world’s biggest and best automakers are lining up to compete with the tiny automaker, which sold just 31,655 cars globally last year and 13,785 units in the U.S., according to WardsAuto estimates.

The i8 and i3 are part of a wave of stunning new plug-in products that promise to steal away market share and future buyers from Tesla while it struggles to introduce just three new products in the next several years: the Model X, a CUV sibling to the Model S that is two years late and now due later this year. A $30,000 sedan and CUV are expected in 2017 or 2018 if Tesla can meet its production deadlines.

Meanwhile, an impressive array of competitive BEV and PHEV models are entering the market during the same period at a variety of price points. On the high end are vehicles like the Audi R8 e-tron sports car that promises a range of 280 miles (450 km), an Audi CUV promising a range of 311 miles (500 km) aimed at the Model X and a BEV Porsche targeting the Model S.

In the middle are cars like the unique i3, which already is a hit in California, plus numerous affordable BEVs impinging on Tesla’s upcoming mainstream Gen III models, including the Chevrolet Bolt which promises a range of 200 miles (322 km) and a redesigned Nissan Leaf that is the sales leader in the BEV segment, along with dozens of other new and improved PHEVs and BEVs such as the Chevy Volt and Fiat 500e. A total of 13 pure BEVs were offered in the U.S. last year, accounting for a total of 65,347 deliveries and 53 HEVs and PHEVs were sold, accounting for 507,272 units, according to WardsAuto data. Non-traditional competitors such as Google and Apple also are eyeing the EV market.

Tesla’s bid to become a dominant vehicle battery supplier is being challenged by Chinese EV automaker and battery giant BYD, which is tripling production capacity to equal Tesla’s Gigafactory by 2020. 

Volkswagen, which sold more than 10 million vehicles globally last year and owns Audi, Porsche, Bentley, Lamborghini and Bugatti, is investing heavily in a battery strategy it says will equal or better Tesla’s.

There also are new-technology startups such as Sakti3, which is developing promising solid-state technology batteries with backing from General Motors and others.

Meanwhile Toyota, the world’s largest automaker and Korean giant Hyundai are placing long-term bets on hydrogen fuel cells, PHEVs and HEVs rather than pure EVs.  Hyundai introduced a fuel-cell powered CUV last year and Toyota will introduce an FCV this year.

Hydrogen-powered vehicles can refuel in minutes and provide ranges up to 300 (483 km) miles with zero emissions. A study of greenhouse gas-emissions by the Advanced Power and Energy Program at the University of California at Irvine shows fuel-cell vehicles running on hydrogen derived from natural gas ultimately create far less GHG emissions than BEVs running off the U.S. grid, which is powered mostly by coal and natural gas.

GHG emissions created by fuel sources are expected to be factored into California emissions standards post 2025.

The other threat competitors pose to Tesla is massive dealership networks that are conveniently located, do warranty work and repair fender-benders in all 50 states. Purchasers of the Model S, which has an average transaction price north of $100,000, don’t care their Tesla store won’t take trade-ins, do warranty work or supply loaners when extensive repairs are required, but people who stretch to pay $30,000 to $40,000 for a vehicle certainly do. Tesla is not even allowed to sell vehicles in five U.S. states.

Success in China is crucial to Tesla’s goal of selling 500,000 vehicles globally by 2020, but like every other automaker selling EVs in China, Tesla is struggling despite big government incentives for EVs.

Tesla’s extraordinary stock price, which has created a valuation as high as half General Motors, is based on investors believing the automaker will be a major disruptive force in transportation.

But lately CEO Elon Musk has been trying to boost sales with nothing but old-school strategies such as offering all-wheel-drive, more horsepower and making inflated claims about autonomous driving capabilities and using an app to try to eliminate range anxiety on the one car he offers. With all the competitive threats looming on the horizon, he needs to do better than that.

Discuss this Blog Entry 5

on Apr 10, 2015

No doubt, the i8 looks great, but it is hardly an electric car with a 7.2kWh battery and pathetic 22.5-miles of electric range while barely seating 4 adults. That car doesn't move the needle for where electric vehicles need to be and doesn't help wean us away from gasoline. Also, regarding your 'benefit of dealers' comments, I dare you to try and find a BMW i8 at sticker price. Your helpful friendly neighborhood dealer has taken a low volume halo car and decided they can mark it up over $20k. I'd call that another strike against dealers and another perfect example of how they 'help' us as they try to maintain their cartel.

As for the '5 states' that can't sell Teslas, it doesn't tell all of the story. I live in one of those states (Texas) and ordering online and having the car show up at your house is a nice experience. So while there are some minor inconvenience involved (e.g. not being able to call local service directly), the benefits far outweigh the cons. There are well over 2,000 Model Ss in Texas and I see more driving around every day.

Answer this question: faced with a choice of buying a Tesla Model 3 for base $35k with over 200 mile range and a Chevy Bolt with equivalent range in 2017, which would you buy? Which do you think will perform better and be a cooler car? Keep in mind one of those vehicles can drive coast to coast on the SuperCharger network and the other can't. If the Model 3 is half as cool as the Model S is, Tesla will be able to sell all they can make, and they'll have 40k preorders the first week they open the reservation queue.

on Apr 10, 2015

You make some good points Stephen, but a lot of EV buyers, especially those that are paying over sticker for luxury plug-ins such as the i8 and Panamara, just want a cool car with HOV lane and parking perks. The fact these cars can drive all day under ICE power is seen as a huge benefit, not something to be ashamed of.

As far as dealers go, the company store model works for expensive low-volume cars and affluent customers. It won't work very well when Tesla is trying to deliver 450,000 vehicles annually that way when competitors offer more convenient choices.

Make no mistake, I think the Tesla Model S is one of the world's great cars. I believe the Model X and the Gen III cars will be excellent as well. But Tesla is going to be the only EV maker in the world that actually has to make a profit on the vehicles it sells. Every other automaker on earth will be willing to lose money on their products just to have them as image cars and to meet global emissions rules. Tesla is going to have a very hard time sustaining big profit margins if all of its competitors don't care if they lose money.

on Apr 24, 2015

I think you make good points about Tesla facing new competition from future full-electric, 200-mile offering from traditional carmakers. For me there are two main questions at play here:
1) Will Tesla continue to do enough unique things beyond a large battery fueling an electric motor to maintain their advantage? I'd say that they will still have a styling edge, particularly after swiping the designer behind Aston-Martin's revivial. Bigger, I'll be very surprised if any traditional automaker can match them technologically, as Tesla employs an enormous tech-savvy group in Silicon Valley. That could be enormous going forward, particularly as autonomous driving becomes a reality.
2) Can Tesla expand the EV market in accordance with their aims? That's the major unknown here, but it does seem feasible that we'll reach a point where there can strong demand for the Model 3 alongside the Chevy Bolt, or the Model S & X alongside legit German competitors, with each of them somewhat legitimizing the others and encouraging the worldwide expansion of EV infrastructure. This is why Musk tends to outwardly welcome and encourage competition in his space.

The biggest potential problem for Tesla in my mind is if they release a car that ends up being a flop. I don't think that's terribly likely, but with so few models in play, each one is an enormous gamble for the company.

on Apr 24, 2015


Tesla defiinitely has a great brand, leading technology and terrific design, but I see numerous problems as it seeks to increase production tenfold by 2020:
1) Tesla may have some of the best designers and software engineers in the world, but it's production team can't hit deadlines and this is starting to be a major problem as it ramps up manufacturing volumes.
2) As it seeks to increase volume, Tesla has to appeal to a wider demographic of buyers that goes far beyond early adopters and EV enthusiasts. It will be increasingly difficult for Tesla to attract more mainstream buyers both from a product and customer-service standpoint.
3) As I mention in the blog, every major manufacturer in the world will be making EVs by 2020 because they are being forced to by Federal and California emissions rules. Even if Tesla has superior products, it will be very difficult for it to achieve strong margins when all its competitors are selling products for thousands below cost and have much larger sales and support networks.

on Jul 23, 2017

Folks, you want a way to make money on Telsa? Short the stock! A lot of automobile companies of the past were originators in the market place. But, the did not make a profit on their product. If it were not for selling mileage credits to FCA, Telsa would be out of business already. Elon Musk is a visionary no doubt. But he does not have the financial might of the Main Street automobile manufacturers. They will catch up and pass Telsa. If Elon was smart, which he is. He would sell Telsa like he has with his past endevors for billions and concentrate on Space-X where his only competion is the federal government. He can beat the Feds because of his effiencies. And we know how effiencient the Feds are when it comes to anything that they do.

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Drew Winter

Drew Winter is Editor-in-Chief of WardsAuto World magazine and a Senior Editor at He was won numerous awards for his work in both print and digital media and has been...

Tom Murphy

Tom Murphy is executive editor of WardsAuto World magazine, with an emphasis on technology and suppliers. He leads selection of the Ward’s 10 Best Engines and Ward’s 10 Best Interiors...
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