Talking Tesla: Who is the Real Competition?

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 explains that Tesla's real competition isn't made up of the other electric or hybrid vehicles on the market today. The Model S may be electric, but it's set up to compete against similarly priced BMWs, Mercedes, and Cadillacs ... not the Chevy Volt or the Nissan Leaf.

A full transcript follows the video.

Richard Engdahl: Let's start with the topic that's most interesting to me in the auto space, which is the cutting edge; electric vehicles and Tesla in particular.

I'm always kind of amused and bewildered by people talking about Tesla and saying, "How can Tesla succeed? Look what happened with the Chevy Volt," or whatever -- trying to put all electric vehicles in the same bucket.

To me, especially having gone with Rex to test drive one of these Teslas and seeing David Gardner driving one around, it's clear to me that Tesla's competition is not other electric vehicles. It's the high-end sports sedans and the like.

John Rosevear: No. I've been saying since the beginning, Tesla's competition is whatever a buyer in the position to spend $70-80 grand on a car might otherwise buy. They're competing with the Lexus that person already has. They're competing with the BMW, the Mercedes, increasingly the Cadillac, the Infiniti, brands like that.

They're offering something of a different proposition because it's electric, but at the same time they have to deliver a car with an interior that an Audi customer -- because Audi has terrific interiors -- that an Audi customer is going to get in and say, "OK, this is good. This is something I will spend my money on. This is not junky. This is not some fly by-night thing."

It has to feel like a solid car, and the Model S is a great car. They did a great job on it. They got some real talent later on in its development; some folks from Volkswagen  (NASDAQOTH: VLKAY  ) and some other major automakers, and they were really able to deliver. The first model was built to a high standard and executed the way you'd expect a $70,000 luxury sedan to be executed -- except that this has this innovative drive train.

Yeah, it's totally not competing with the Chevy Volt, which is really a hybrid in a different price range. It's competing with the BMW 5-Series, the new Cadillac CTS, things like that.


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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 20, 2013, at 12:27 PM, ashaskevich wrote:

    In other word, there is no competition. Tesla Motors has a monopoly.

  • Report this Comment On October 20, 2013, at 12:29 PM, ashaskevich wrote:

    There is no competition to Tesla Motors. Telsa Motors has a monopoly of electric vehicles.

  • Report this Comment On October 20, 2013, at 1:02 PM, AAT1968 wrote:

    There are customers who would not normally pay 80K to drive a luxury ICE car but can afford it and are willing to buy the model S. In this case Tesla is making the size of the luxury 'pie' bigger. Despite the size and capital advantages of Tesla's competitors, Tesla has done something that none of them have been able to and don't look likely to in the near future: make an electric car that customers actually desire. Desire is Tesla's advantage even more than technology is.

  • Report this Comment On October 20, 2013, at 1:03 PM, lem2004 wrote:

    They may have a monopoly on evs that can go 2-3 hundred miles on a charge,but they don't have a monopoly on evs per say.

  • Report this Comment On October 20, 2013, at 1:55 PM, jamesdan567 wrote:

    Someone capable of dropping $80K cash on the Tesla will do their due diligence first. Over 100K miles of life, I'd spend $3400 on electricity to operate the MS ($0.10 per kwh with solar panels and 250 miles per full charge on an 85kwh battery).

    With a 7 series BMW, that figure would be $18K, given 22mpg and $4.00 per gallon. The MS also provides $7.5K of tax credits that the 7 series does not. So the MS already has a $25K cost benefit (31%) before you've driven a mile. No matter how we run the numbers, the MS has a substantial cost advantage to operate.

    Since the MS has no ICE engine, there are maintenance benefits too. That delta is ignored here. So, for a buyer who turns over his car every 100K for a new one, the MS costs $55K vs the 7 series at $80K.

    Since we all know the MS is quieter, handles better, is faster and is just as stylish as a 7 series, then 9 out of 10 buyers in the US will probably pick the Tesla due to the overwhelming cost advantages. That's how people with a lot of money operate. They will also know the MS reduces the trade deficit, cuts foreign oil dependency and is less harmful to the atmosphere we all breath. Smart buyers know this matters too.

    Given the above, the case can be made that Tesla has no competition yet. The Delta is so large, the ICE cars in its class simply don't measure up. Does a high school runner that runs the 100m in 11 flat "compete" with Usain Bolt jogging a 10.2 100m ? Did mobile smart phones really "compete" with phones hooked to a landline?

    The MS is a demonstration of new automotive technology that simply has no peers. Tesla's competitors are way behind the curve, blowing smoke into the news media in their attempts to appear competitive. But we all know better. Tesla's lead is substantial. It may even be unsurmountable. The latter is up to Tesla and Elon Musk.

    Tesla is valued expensively because we all know they are going to sell 100K cars a year. At that level, TSLA is selling at about 3X future sales. That's not unusual in the marketplace. As expectations of sales and probabilities change, Tesla will grow in value.

  • Report this Comment On October 20, 2013, at 2:21 PM, vet212 wrote:

    anyone who builds a useful and reliable automobile that dose not cost an arm and leg and can be drive across town without running out of charge or fuel before it gets you there and back

  • Report this Comment On October 21, 2013, at 11:39 AM, ffbj wrote:

    Some of the more intelligent comments on Tesla I have read, especially the more in depth ones by jamesdan567

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