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Tesla Nabs 8% of the U.S. Luxury Car Market

As if Tesla's (NASDAQ: TSLA  )  280% stock price increase since the beginning of 2013 or becoming profitable in Q1 of this year wasn't enough, the Electrification Coalition released a report last week stating that Tesla's Model S made up 8.4% of the U.S. luxury automotive market in the first six months of the year.

In the first quarter of this, year Model S sales outpaced Audi A8, BMW 7-series and Mercedes S Class sales. But what's really striking about the comparison is that Tesla is a young car company and its Model S has been selling for only about 14 months, while BMW has sold its 7-series since 1977 and Audi's flagship A8 launched back in 1994.

Tesla Model S. Source: Tesla.

Part of Tesla's success is due to the acceptance of plug-in electric vehicles, or PEVs, among U.S. consumers and an overall bounce back in automotive sales. We first saw evidence that the U.S. luxury auto market was coming back in 2011, with spikes in sales from BMW and Mercedes. Meanwhile, the PEV business has seen more than 110,000 U.S. vehicle sales since the beginning of 2011 -- including cars from Tesla, General MotorsNissan, Toyota, and others.

Topping off Tesla's solid PEV and luxury position is that PEV sales have been twice as high in their first two years than hybrid vehicles were in the first two years after that market's initial launch -- a trend that could certainly continue to benefit Tesla.

But Tesla has bigger aspirations than just tackling the luxury or PEV market. Tesla CEO Elon Musk has been very vocal about introducing a $30,000 car for the masses by 2016. To achieve that goal, the company will need to significantly decrease the cost of its batteries. That's why the latest information form the Electrification Coalition is so important. The group expects battery costs to drop by almost half by 2020. 

Model S interior. Source: Tesla.

But not everyone is convinced Tesla can lower battery costs in time -- including Bill Alpert of Barron's. "Industries and governments around the world have spent billions on battery research, but few expect to trim electric-car battery costs by more than 20%-30% by the planned 2016 launch of Tesla's car for the Everyman," he wrote in an article last month.

But if battery costs do drop by half by 2020, then it's not out of the realm of possibility for them to fall by 20% to 30% over the next three or four years. GM and Nissan are researching how they can reduce EV battery costs by selling used batteries after their automotive lifecycle is finished. Used EV batteries can still have 70% of their initial capacity after about 10 years, and the two car companies are looking into ways to sell those batteries to energy companies. 

But the best way to lower battery costs is for auto consumers to adopt EVs and scale down the overall cost of battery prices in the process. So far, things have been moving in the right direction for that to happen. From 2010 to 2011, just over 17,000 electric vehicles were sold. In 2012, that number jumped to more than 52,000. Now, just seven months into 2013, the EV auto market has already sold almost 41,000 electric vehicles. The models of EV cars on the market also jumped from just three in 2010-2011 to 13 right now. Those stats have contributed to a drop in EV battery prices by about 40% from 2010 to 2012.

Investors would be wise to keep an eye on EV sales to see whether consumers continue to turn toward electric alternatives. As EV sales go up and battery costs go down, Tesla will be in a much better position to meet its mass-market goals.

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Read/Post Comments (18) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On August 04, 2013, at 1:03 PM, hunter3203 wrote:

    The Model S(94ft3) does NOT compete with the BMW 7 Series(107ft3), Audi A8(100ft3) or Mercedes S class(109ft3). All of those vehicles have far larger passenger volumes and are even offered in longer wheelbase models that are larger still. The Modes S does compete with the smaller BMW 5 Series(102ft3), Audi A6(98ft3) and Mercedes E Class(98ft3).

  • Report this Comment On August 04, 2013, at 2:28 PM, jeff306 wrote:

    I live a city of 350, 000 people about 100 miles north of los angeles and have seen exactly 1 Tesla Model S. I see an occasional new A8, a few new 7 series, and several new S class daily. The Tesla is outselling these? Where are these phantom Teslas? Maybe their owners arent daring enough for a road trip. Electric vehicles don't make much sense for purposes other than commuting. The future of the automobile is diesel electric plug-in hybrids; just as soon as the economics make more sense

  • Report this Comment On August 04, 2013, at 2:54 PM, jamesdan567 wrote:

    The Tesla Model S also competes directly with the BMW 7 series, the Audi A8 and the Mercedes S class. Wheelbase and passenger volumes are far less relevant to the fact all 4 of these cars are in the same price and luxury class and attract attention (well the Tesla does) from former buyers of the BMW7, A8 and MBZ S class.

    Model S Tesla has EPA rated 95 mpg, while competition above ranges from 21MPG to 25MPG (per fuel

  • Report this Comment On August 04, 2013, at 2:55 PM, jamesdan567 wrote:

    I see 3-5 Tesla Model S cars every day here in San Diego. About twice the level of their competition

  • Report this Comment On August 04, 2013, at 3:12 PM, autoinsider wrote:

    I remember the Segway revolution and how it was going to change the world.

  • Report this Comment On August 04, 2013, at 4:47 PM, phillipzx3 wrote:

    I see three...maybe 4 Model S's around Portland (Oregon) and another 4 or 5 Roadsters every few days. We have a lot of electric cars here. Many (maybe most) are DIY because people are tired of waiting for the "big boys" to build a low cost, decently performing EV.

    Hunter 3203,

    Not sure where you're getting your "facts," but you might want to recheck them. The Model S competes with those mentions cars..easily. The cargo area of the Model S blows away all three of your "examples."

  • Report this Comment On August 04, 2013, at 5:00 PM, Oseo wrote:

    Correction: The Tesla model S, by itself, accounted for the entire expansion of the luxury sedan market sales: about 9%. Obviously, after one year out, their percentage out of all car numbers on the road is modest. What does this mean: not only do people want to buy an electric luxury car like Tesla’s above any other luxury car, but more people are willing to buy a luxury car than before because it is a Tesla. Bottom line, Tesla is the future of the automotive industry. Hey, they didn’t keep any other car manufacturer from making something this incredible themselves. At this point, the reverse is not true. Tesla’s model S achieved the best car evaluation score ever, voted car of the year, and is the most awesome to drive... It’s the first real shot anyone in the car industry has given the environment. Period. They are the best. Period. Be thankful that somebody did this. Be thankful that you wont be staring at exhaust fumes for the next decades, visualizing a terrible future for your children. Support Tesla, they earned it, and you owe it to the possibility of a good place to live.

  • Report this Comment On August 04, 2013, at 6:10 PM, weaponz wrote:

    @autoinsider - Except the segway was never really selling well. The Tesla Model S is selling better then any car in it's class. It is more appropriate to compare it to the online shopping and smartphone revolution rather then the segway.

  • Report this Comment On August 04, 2013, at 7:59 PM, sharklasers wrote:

    Love the hype and protective tone of all the hipsters. Enjoy the decline, I'm getting the popcorn ready.

  • Report this Comment On August 04, 2013, at 8:27 PM, CrazyDocAl wrote:

    No matter how you spin the numbers Tesla is still selling a tiny fraction of 1% of the total number of vehicles sold per year. Secondly Musk's dream of a $30k car and it selling will is a pipe dream. Even if he can get the battery cost down to where Tesla could sell them and make a profit it still doesn't take into account that today's market already has a cars close to that range and they aren't selling much better than the "S".

    Unless Tesla switches to a plug in hybrid, which they don't have the resources to do, they will expand at a very modest pace. At a modest pace they will get swamped if the market shows signs of life by the large mfgs.

  • Report this Comment On August 04, 2013, at 9:12 PM, Oseo wrote:

    Tesla stock has changed, gone up, quickly because the Tesla electric car and it infrastructure has changed us, and revolutionized the auto industry, that much quicker. What’s holding things back? More production? More models? That is so, so, so inconsequential: facilities, production, and models can expand at the drop of a hat. What would be tragic was to step back in time when the option that Tesla offers was not even on the table.

  • Report this Comment On August 04, 2013, at 9:13 PM, Oseo wrote:

    Tesla stock has changed, gone up, quickly because the Tesla electric car and it infrastructure has changed us, and revolutionized the auto industry, that much quicker. What’s holding things back? More production? More models? That is so, so, so inconsequential: facilities, production, and models can expand at the drop of a hat. What would be tragic was to step back in time when the option that Tesla offers was not even on the table.

  • Report this Comment On August 04, 2013, at 10:38 PM, rharris50 wrote:

    I'm surprised by some of the comments. The story is pretty straightforward, describing factually the sales pattern for the new Tesla. Even so, some comments question the sales numbers--one even refers to "phantom" Teslas. Another says that this is only a niche market, noting that it is only 1% of total vehicle sales. Such comments miss the point. Tesla has an amazing 8% of the luxury car market, even though the car is brand new. Whether or not we see them in our neighborhood is not really relevant. The 1% number is also not relevant, because the luxury car market is a separate market from the market for economy cars. Mercedes has a tiny percentage of total vehicles sold also, but that is hardly a problem for them. Their market is the LUXURY car market. Others argue that the Tesla cannot compete with various other luxury cars. However, that ignores the fact that Tesla IS competing, and doing so very well. The beauty of market competition among auto manufacturers is that there is something for everyone. If the Tesla is not the car for you, that does not mean you can generalize about everyone else's tastes. It's a beautiful car that just received the highest rating every given by Consumer Reports. It also has a range better than the competition. Whether that range is enough is a personal decision, but for many affluent people, this apparently makes at least a magnificent second car, even if they take too many long trips to make it practical as their only car. The sales numbers speak for themselves. As an aside, my big reservation is that I expect battery technology to improve over the next few years, so waiting makes sense for me.

  • Report this Comment On August 05, 2013, at 12:00 AM, ABN2nds wrote:

    Haven't seen one on the road around here, if it is outselling those other makes, (which I see all the time), then where are the Teslas?

  • Report this Comment On August 05, 2013, at 12:02 AM, hunter3203 wrote:

    @jamesdan567 - The Models S is in the price range of the larger luxury models due to its choice of an EV powertrain. At this point it's simply more expensive to build an EV than it is to build a car with an ICE.

  • Report this Comment On August 05, 2013, at 2:17 AM, rharris50 wrote:

    ABN2nds, the Tesla is outselling all of those other makes; however, the Tesla has been sold for only a few months. So to compare sales, you need to make a head-to-head comparison, which would mean new models only, not all of the luxury cars that you see on the road, most of which were produced and sold before the Tesla even went on sale.

  • Report this Comment On August 05, 2013, at 8:54 AM, ToddRLockwood wrote:

    It never ceases to amaze me how some respondents on these forums think they're smarter than the management at Tesla Motors, or more specifically, smarter than Elon Musk. Believe me, any fundamental problem you think you've identified with the manufacture and sale of electric cars has already been considered. THINK before you comment.

  • Report this Comment On August 05, 2013, at 11:58 AM, N3ALICUS wrote:

    @rharris50 You are making too much sense.

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