Why Tesla Isn't Afraid of the Competition

Tesla Motors' (NASDAQ: TSLA  ) ballooning market value has astonished even its most devoted critics. Shares of the electric-car maker are up more than 370% on the year. However, competition is starting to heat up in the electric vehicle space with new entrants, such as BMW targeting the mass EV market in a big way. Despite such threats, Tesla CEO Elon Musk sees a bright future for his niche auto company. In fact, Musk's opinions of the competition may surprise investors.

The more competition, the better
"I hope Tesla is surrounded by electric cars from other manufacturers," the outspoken CEO remarked in an interview with Bloomberg earlier this year. It now looks like Musk's wish is becoming a reality. This week, BMW joined the ranks of established automakers with EV models for sale. BMW unveiled its new all-electric i3 model in New York on Monday, though the car won't be available in the United States until the second-quarter of 2014.

Tesla bears immediately anchored to the BMW i3's price point of $41,350 before federal and state tax credits, which is notably less than what it costs for a new Tesla Model S. However, the Model S gets nearly three times as much battery range as the i3, as well as faster acceleration. Then again, who's counting? Not Musk, since Tesla welcomes EV competitors.

To be fair, this isn't just CEO lip service. In fact, Tesla is already helping some rival automakers build electric cars. The company is supplying powertrains for the 2014 Mercedes-Benz Electric Drive, which will include Tesla-manufactured battery packs, electric motors, on-board chargers, and other electronics. Toyota (NYSE: TM  ) also has Tesla to thank for its electric RAV 4; it comes with a Tesla-made motor and lithium-ion batteries.

These are two examples of how Tesla's business model is structured to accelerate widespread EV adoption, even if that means working together with competitors. I suspect we'll see more deals between the Palo Alto company and rival automakers in the future. However, before mass EV adoption becomes a reality, carmakers such as Tesla need to focus on producing cheaper electric options.

To give you a glance of the EV market, I've included a breakdown below of some current and prospective all-electric cars and their respective price points:

Current Electric Vehicles

Company

EV

EPA Range

Sale Price

Tesla Motors

Tesla Model S

208 miles

$62,400 

Toyota

Rav4 EV

103 miles 

MSRP  $49,800

Chrysler

Fiat 500e (only available in California)

87 miles 

MSRP  $31,800

Ford

Ford Focus EV

76 miles 

MSRP  $35,200

Nissan

Nissan Leaf S series

73 miles 

MSRP $28,800 

Prospective Electric Vehicles

Company

EV

Projected Range

Sale Price

BMW

BMW i3 EV

80 miles 

MSRP  $41,350

Tesla Motors

Tesla Model X

214 miles 

Starting  at $60,000

Daimler

Mercedes Electric Drive

115 miles 

Not yet available

Honda

Honda Fit EV

82 miles 

Leasing program only available in select states

General Motors

Chevy Spark EV

82 miles 

MSRP  $27,500

As you can see, there is a way to go before both range and price for electric vehicles are appealing to the masses. However, at this point Tesla is smart not to worry about competitors. In fact, the more that traditional automakers invest in EV technology the more it proves that there is a market for battery-powered cars.

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Read/Post Comments (12) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On July 31, 2013, at 3:30 PM, jamesdan567 wrote:

    The BWM I3 is a recooked mini cooper with one dimensional range and cost and performance designed to compete with another dog, the Chevy Volt. Its performance and styling are embarrassing at best for BMW, who built the car completely without consideration that Tesla would change everything with its stellar offering.

    A true EV is the Model S Tesla, which out competes the ICE cars in its class on every facet. There is no point in comparing the BMW I3 to the Tesla S, its apples vs oranges at best. The same goes for the BMW i8, which at $140K SRP will be only a micro market success at best.

    thankfully, the author's article sort of points out the utter embarrassment the Tesla competitors must feel at being caught with their pants down, as the charts above show there is no EV in the Tesla EV class. Tesla is an advanced technology company with a huge lead in the EV market, the most important aspects of which are covered by patents that will protect Tesla's lead for many

    years ahead.

  • Report this Comment On July 31, 2013, at 4:12 PM, felixy wrote:

    BMW has a market cap of 58.9 Billlion US $, Tesla 15,5.

    This is a multiple of less than 4 times.For one of the premium car makers of this world, producing and selling hundreds of thousands cars allover the world

    with a world class brand , and highly profitable...

    A lot of sugar in the tea! Wake up ,ladies and gentlemen - illusion is rarely leding to sustainable profits...

  • Report this Comment On July 31, 2013, at 4:41 PM, Petronilus wrote:

    Tesla is already making the "Ultimate EV Driving Machine" with the Model S and BMW's i3 will do nothing about that.

    All those EV cars with range in the 100 miles or below are helping Tesla build a stronger trend away from ICE cars through increased awareness & acceptance as well as a further development of charging networks and more high-volume manufacturing efficiency of the batteries involved. These cars with their limited range, performance, geeky design etc. are no thread to Tesla until Tesla decides to go into the mainstream segment or the traditional car companies start putting a more serious passion behind EV R&D.

  • Report this Comment On July 31, 2013, at 5:05 PM, LungsOfSteel wrote:

    A whopping 200 miles is nothing to call Ma about either.

    You Fools being paid by Tesla?

  • Report this Comment On July 31, 2013, at 5:13 PM, ckgod wrote:

    Whatever the other EV makers do to pull people toward EV and away from ICE cars will help Tesla. Look at how many previous Prius owners who have bought the Tesla Model S even though the price difference is substantial. I think that's Elon's reasoning too.

  • Report this Comment On July 31, 2013, at 5:50 PM, ckgod wrote:

    @LungsOfSteel Yes, through TSLA stock ownership. lol.

  • Report this Comment On July 31, 2013, at 6:40 PM, EdwardInFlorida wrote:

    @LungsOfSteel Are you being paid by the petroleum industry?

    That range is for the Model S with the smaller 60 Kwh battery. The 85 kwh battery can propel the car to a range of over 300 miles. There are many high performance gas powered cars that actually have a smaller range even with an 18 gallon tank.

    Do a little more research next time.

  • Report this Comment On July 31, 2013, at 7:19 PM, Connelky wrote:

    The i3 is unfortunately pretty lame. That range is just not that good. I think they will have a really hard time selling it without the range extender, which will add a lot to the cost.

    The i8 is basically the tesla roadster. BMW is probably trying to just attract attention to their other models, because as far as I can see, they are barking up the wrig tree.

    BMW has shown to not worry about higher prices low volume, think m5, and hybrid 7 series. If they were serious about ev's they would have made a slightly overpriced 3 or 5 series sedan.

  • Report this Comment On July 31, 2013, at 11:35 PM, normgarry wrote:

    #1 EV are not environmentally friendly. They merely shift the point of emissions from the vehicle to whatever powers them.

    #2 There is absolutely NOTHING economical about an EV. They typically have considerably higher prices than similarly sized gasoline powered cars. Studies shot that you'd have to drive one more than 150,000 miles before you "break even".

    Most people don't drive more than 80 miles a day. That's roughly what you'd have to drive to make a Hybrid, EV or Diesel worth the higher up front cost.

    #3 Teslas real problem is the I.C.E vehicle. It's obvious the liberals in office continue imposing stricter and stricter CAFE laws against cars and are allowing gas prices to rise to force people out of ICE into EV that they don't want - even giving them tax subsidies to sweeten the deal. That deal is like putting sugar on sh!t.

    I just bought a $60,000 Chrysler 300c SRT8 2013 instead of buying a "base" model S because for what I could have paid, the Model S is not a "finished" product. It lacks the safetytec features in my SRT8.

  • Report this Comment On August 01, 2013, at 1:02 AM, kankemike wrote:

    @normgarry You spent $60,000 on a car and it wasn't a model s? What was the residual value after you drove off the lot? Say it, "Chrysler." Now say this, "Tesla." Which one made you feel like you did your homework?

  • Report this Comment On August 01, 2013, at 2:35 AM, greenknight32 wrote:

    @normgarry - an EV is so much more efficient than an ICE vehicle that there's a net reduction in emissions even if all the electricity to charge it comes from coal.

  • Report this Comment On August 01, 2013, at 3:43 PM, FullyCooly wrote:

    #1 EV are environmentally friendly. They produce no emissions period.

    If you have solar panels you can use those as the power source for the car.

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