Examining Tesla's Competition, Part 3: Gen III Sedan Competitors

While the Model S has been a resounding success for Tesla Motors (NASDAQ: TSLA  ) , the hopes for large future earnings stem from the expectation of the electric-auto maker's expansion into the mass market at a $30,000 to $40,000 range. To do that, Tesla has planned the Gen III sedan. We've already looked at the likely competition for Tesla's Model S and Model X, and here I'll examine some of the Gen III's potential top competitors.

The Germans
When Tesla CEO Elon Musk singled out the BMW (NASDAQOTH: BAMXF  ) 3 Series as the car the Gen III would declare war on, he did so for good reason. The 3 Series is a benchmark of the sports sedan in the $30k-$40k price range. Not only will the Gen III be competing with the conventionally powered 3 Series, but BMW has also launched a hybrid 3 Series that gets more than 30 miles per gallon. While that model is still primarily gas-powered, it could pick off some of the buyers just looking for a greener alternative to the standard 3 Series.

But BMW is also launching a plug-in electric vehicle, or PHEV, program to develop new technologies. As I discussed in Part 2 of this series, BMW is looking to develop an X5 SUV PHEV. Although there is no timetable set for that vehicle, BMW already has the i3 PHEV available.

With a three-door hatchback design, 80 to 100 miles of range (an optional gas engine can extend those numbers), and 170 horsepower, the i3 is more of a shorter-range vehicle ideal for those who live in urban areas. In contrast, Tesla aims for a sports sedan more on par with the 3 Series and an all-electric range of around 200 miles. The i3 has its own purpose but shouldn't be considered Tesla's primary competition. However, it will be interesting to see whether BMW can leverage technology from the i3 to build a more powerful all-electric vehicle.

The Americans
One thing that grabbed attention in the American press recently was General Motors' (NYSE: GM  ) announcement that it will build an electric car with 200 miles of range selling in the $30k range. Branded as a Cadillac, the car would be designed to take on Tesla and advance GM's position in the EV field.

However, GM hasn't set a timetable for the car, which means we shouldn't expect to see it anytime soon. And it seems that if GM wants to make money on this car -- or even just not lose a lot of money -- the auto giant will need to make some significant technological advancements from here. The current Chevrolet Volt has only 38 miles of all-electric range and starts at around $34,000, and GM still loses a small amount of money on each car.

GM might use this 200-mile EV as a beta testing project similar to the Volt, on which it can lose a little money on each car. However, to make the loss per car reasonable, there's a lot of work to be done between now and whenever this car is released.

For his part, Musk tweeted that he was "happy to hear that GM plans to develop an affordable 200-mile range electric car." He added: "Right target. Hope others do same." So at least for the time being, Musk doesn't appear to scared by GM.

Other competitors
Of course, the vehicles and companies I've mentioned here won't be the only competition for the Gen III sedan. Very capable conventionally powered offerings will come along from Audi, Lexus, and Mercedes-Benz. However, the major automakers aren't indicating that they'll have a vehicle similar to the Gen III in range and price by the time the Gen III hits the market. So it appears Tesla still has room to capture this segment of the market, and it will be critical that Tesla does so. It's what Wall Street expects.

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  • Report this Comment On September 29, 2013, at 12:05 PM, DaivdGoldbg wrote:

    Hi, does anyone know what year the Gen-3 is coming out? Is is 2016, 2017, or 2018? Thanks

  • Report this Comment On September 29, 2013, at 12:10 PM, ckgod wrote:

    A totally useless article. It's like predicting who will be giving Apple competition in 2007. You don't know anything about what Tesla is working on as well as what is the potential competitors you mentioned or not mentioned are.

  • Report this Comment On September 29, 2013, at 12:20 PM, coll1951 wrote:

    Nice article, but the reality is that if Tesla is going to be the world beater, they need to start building factories, fast. They will need at least 5 more, at $1 billion, for land, plant, tooling, etc. Plus, the current manufactures already have a better distribution system, made to deliver and service millions of vehicles, per year. It's funny that everybody hates the franchised dealers, and believe the Tesla model, is the best. Ford, GM, Toyota, Mercedes and BMW all had company owned dealership (Mercedes still has them in Europe, and they lose hundreds of millions), they all discovered they knew how to produce vehicles, but they didn't know how to sell or service them, and make money. Anybody that believes that Tesla can beat every major world manufacture, forever, needs to change what they are smoking. These people build transportation, not just gasoline engines, they will produce, what ever sells. Tesla, has no monopoly on batteries or electric motors.

  • Report this Comment On September 29, 2013, at 3:11 PM, weaponz wrote:

    Tesla also plans to release a Gen III suv/crossover.

    @DavidGoldbg - so far all indicators point to 2016/2017. That is what is written on Tesla's documents released during the shareholder meetings. We know they already completed the clay sculpture, so the design is done at least.

    @ckgod - Not the same really. In mobile the companies tend to be secretive and they can make a new product in less than a year. For cars we know years in advanced and they always show off prototypes ahead of time.

    @coll1951 - They don't need to start building factories fast. Tesla's current factory can handle at least 500k cars in capacity. Tesla also recently got a factory in Europe. The thing is most factories already exist and they just need to buy them on the cheap and retool them.

    Actually, no. Tesla right now has 1 service center per 500 customers. Toyota for example has 1 service center per 10,000 customers. The advantage Tesla has as a new company is they can scale with growth and build service centers where their customers are. One advantage of EVs is also you have virtually no maintenance, so the service centers only really need to handle repairs. Tesla can also diagnose and fix some problems remotely.

    The biggest problem the other manufacturers have is that they do use 3rd party dealerships. That puts them in an awkward position as their own dealers put pressure on them. The biggest burden Ford and GM had was their own dealerships revolting against them.

    That said I would not use Ford, GM, Toyota and BMW as a basis because they are traditional car companies. Tesla on the other hand is not and they are reinventing everything. So far most people are pleased with Tesla's service and sales.

    One thing Tesla is doing that is interesting is they are renting out showrooms in malls that handle the test drives and answer sales questions, while at the same time placing service centers in locations where land is cheaper. Traditional dealers keep both together and need prime locations, which ends up very capital expensive. Tesla's method accomplishes same if not better results while doing it at a fraction of the cost. On top of that since cars are built to order, there is no need to waste money keeping inventory other than loaners and test drive cars, which are also for sale.

  • Report this Comment On September 29, 2013, at 3:43 PM, highgrowthcarson wrote:

    coll951 -- the factories are the easy part. Known. They've done it once,they can do it again. Money is no problem. With stock approaching $200/share they can easily raise another billion or two. And a few more profitable quarters and big investment banks will be falling all over themselves to lend Tesla money.

    The problem is, has been and will be for awhile batteries. Recent information, most reliably from Deutsch Bank, suggest battery costs in the 200-250/kwh range. This has been much disputed (on seeking alpha, at least). If Tesla can already build batteries in that price range the sky is the limit.

    If they are still in the 400/kwh price range with little hope of coming down soon Gen III car will either not be very capable or not have much gross margin.

    Competition so far is non-existent as other companies are way behind in the crucial battery tech and Tesla has their tech ringed with a thorny thicket of patents.

    The upside for this name is huge. The downside still a bit scary. If you have some appetite for risk, probably no other better big cap investment.

  • Report this Comment On September 29, 2013, at 8:40 PM, nonqual wrote:

    BMW has No chance. I watched the videos on Insideevs.com about I3 production. Just compare them to the National Geographical video about Fremont---IT'S GAME OVER, unless BMW buys some Kukas and maybe hires some African-Bavarians

  • Report this Comment On September 30, 2013, at 2:30 AM, jamesdan567 wrote:

    GM is aggressively advertising and marketing its "Twin Turbo 410HP Cadillac" as we speak. A 20th century car if I ever saw one. What part of "I wanna be a muscle car" is missing? (none)

    This is what GM is doing. Its a far cry from what GM is saying. Its a different universe compared to Tesla (GM's universe is the "Twilight Zone") :-)

    Meanwhile, Telsa, in its own way, is advertising and marketing the car of the 21st century. Over 400% more efficient, extreme safety, etc.

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