Competition Among Electric Vehicles: A Double-Edged Sword

The Fool's own senior auto analyst, John Rosevear, sits down with Richard Engdahl for an in-depth look at Tesla  (NASDAQ: TSLA  )  and the electric vehicle market, as well as Chrysler's unique situation with Fiat  (NASDAQOTH: FIATY  ) .

In this video segment Rosevear says Tesla hasn't been very forthcoming about its actual numbers, but some say their target may be on the order of 500,000 vehicles a year. Certainly they're enjoying a high volume of orders as they begin to ramp up production, but will that translate into long-term demand?

A full transcript follows the video.

Richard Engdahl: Talking about the possibility of Cadillac coming out with a competing electric vehicle, or Audi. There's a chance that that eats into Tesla's market. On the other hand, I think there's a very good chance that that is a sign that, "Hey, electric vehicles have been legitimized." Is it just a bigger pie?

John Rosevear: Well, it's interesting to hear how Elon Musk reacts to this kind of news. He's basically like, "Bring it on. The more electric cars there are, the more it's a mainstream choice, the more recharging places will pop up, the more infrastructure will pop up, the more it becomes easier for us to make the sale."

That's one side of it. The other side of it is what if these companies ... Audi is owned by Volkswagen (NASDAQOTH: VLKAY  ) . Volkswagen, last year, was the most profitable automaker in the world. They have massive amounts of cash, and they recently said they're going to be pushing much harder into "electrified vehicles," by which they mean hybrids, plug-ins, as well as pure electrics.

Not clear what their plans are going to be, but that's why I often talk about what happens when the electric Audi shows up, because it seems likely that it could come from, for instance, that source. That's a company that, like GM (NYSE: GM  ) , like Toyota (NYSE: TM  ) , like Ford (NYSE: F  ) , like Nissan (NASDAQOTH: NSANY  ) , can plow immense resources into this.

While there is truth to the argument that a small, nimble company can do things that a big, bloated company can't, there's also just the brute force you bring to this in terms of pushing ahead, and then what happens if Tesla's technology is eclipsed a little bit?

What happens if the top Model S three years from now has a 300 mile range and the Audi has a 400 mile range, or the Audi is $10,000 less, or the Audi is a little nicer in some other way?

Engdahl: That's, of course, a possibility. Is it a real danger? Does Tesla not have any type of technology and/or patent advantage that protects them a little bit?

Rosevear: It's a little opaque to me, how protected Tesla is. I really need to get with some experts and talk about this, but electric cars weren't a new idea when Telsa got there. GM has electric car patents going back 20 years, for instance.

Engdahl: But Tesla's ... the range they have is far superior to the other stuff that's out there.

Rosevear: The number of battery cells they're stuffing into the car is superior to anything else out there, and for a long time that was the simple equation -- and it probably still is. Range costs money. How many batteries do you want to include in your car?

Tesla didn't develop the batteries themselves, of course. They're Panasonic battery cells. There's a Ford engineer who said recently, "They're probably the best electric car batteries in the world right now." They are, in fact, what Ford uses in its plug-in hybrids, in much smaller battery packs because those cars only need 20-30 miles of all-electric range.

Tesla's special sauce is in the software that handles it, and the coolant, and so forth, but these are not challenges that are completely insurmountable. If you're somebody at Ford with a $50 million to engineer around this, you're going to engineer around it, and you're going to get close.

Maybe you need two more battery cells in your car to get the same kind of range when you're done because what Tesla did is a little slicker and you can't go there without infringing their patents, but I don't think it's insurmountable.

The question becomes, though, when will the giant automakers decide to do that? If they do a Manhattan Project-type effort, then yes I think there could be an electric Cadillac that is pretty amazing, that stacks up next to a Tesla Model S very well.

To make that investment, they have to feel really sure that there's going to be a market there when it comes out three, four years from now, because that's how long it would take to do that.

GM has been making a lot of noise just in the last few months about, "We're benchmarking Tesla. We have our own electric vehicles coming." They just opened a new ... they have an electric car development center, basically. They just spent $20 million expanding it. They've got all these new tools and testing and rigs, and so forth, that they can mock up electric car batteries and just test them in this place, and so forth.

They made kind of a big show of this, but what are they actually doing? Nobody outside the company knows. Those are closely guarded secrets.

It's the same thing at ... Nissan's dropped a few hints. They have an electric Infiniti coming. They say they've been waiting for wireless charging technology, and meanwhile they've been refining their design. They showed a rough design of it a couple years ago. It looked like an Infiniti sedan. It wasn't particularly remarkable looking.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2013, at 7:22 PM, JKLauderdale wrote:

    1: If you live in an apartment/condo exactly WHERE would you plug in your EV? Something tells me that the association may have a problem with a 200' extension cord dangling off your 3rd floor balcony.

    2: Let's say EVs truly take off and 20% of the cars sold over the next 20yrs are EVs. Can our power grid HANDLE the additional load overnight when we're all already running our air conditioning, dishwashers and laundry?

  • Report this Comment On October 19, 2013, at 11:22 PM, tocodb wrote:

    Who is the girl with the big rack in the background?

  • Report this Comment On October 19, 2013, at 11:53 PM, 7foolonthehill8 wrote:

    the next best battery will be for GM out of Newark Ca. called ENVIA and it promisses the Equal perfomance as TESLA

  • Report this Comment On October 20, 2013, at 12:12 AM, luckyagain wrote:

    At this stage in the EV game, being first counts for a lot. Getting people to be willing to buy an EV is a huge barrier. For the average consumer, the risk of buying an EV is perceived to be very high; whether it is or not. This perception means that to minimize the risk, the consumer will want to buy from the best EV manufacturer in the world. At this time, that is Tesla.

    Maybe in 10 or 15 years, the risk thing will mostly disappear. Just look at how long it took Toyota to develop the hybrid market to the point where the average consumer is actually willing to consider a hybrid car. The same time frame will be necessary for EV.

  • Report this Comment On October 20, 2013, at 12:26 AM, sparksinchitown wrote:

    nobody wants an electric car. I want to know why the gov't will not allow cars that drive themselves. The technology exists. They are starting to see it in Europe.Watch the ads on teevee, it's already in many cars, it's just turned off because of our gov't. These cars are 5 times better drivers than the average driver. I live in Chicago... they have to be 20 times better driver than the folks around here. Texting and teevees in cars, the weak link needs to be removed.

    "I have meet the public, and he...."

    Johnny Rotten

  • Report this Comment On October 20, 2013, at 2:04 AM, TheBorogroves wrote:

    Didn't you release a different video that was part of this interview? Do you really need to chop it up to release?

  • Report this Comment On October 20, 2013, at 4:05 AM, weaponz wrote:

    The problem other manufacturers face is that to get things working requires TIME. You can speed it up with money but you get hit with diminishing returns. Money is not going to speed up trial and error or lifespan improvement testing. Tesla got to where they were with 10 years of research into making this work. With enough money the other makers can maybe cut it down to 5 years. On top of that it requires to create a whole new platform from scratch. And then there is the notion how they need to pay off for the R&D that goes into their ICE conflicting with pushing EVs. All the while Tesla is not sitting still. Will the others catch up to Tesla? Of course. But by that time Tesla will already be big enough to compete and will establish their brand as the go to for electric cars.

    @JKLauderdale -

    1) The first adopters will obviously be the 100 million people with private homes. But cities are building out infrastructure. NY and CA, two of the states with the biggest cities have already committed to building out 10,000 public chargers by 2019. To be honest, every streetlight can be turned into a charger over night.

    2) Answer to this is yes, easily. Night usage for electricity is a lot less than day usage. During night we have a lot of unused capacity. Nobody is doing laundry at 1am and your air conditioner is running the least at night since there is no sun heating your house. As for dishwasher, it only runs at 2kwh max and it is not running the entire night. So easily.

    @sparksinchitown - People want faster horses right? Electric cars make self driving cars much better and easier. Also at least 2 states have legalized self driving cars.

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