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2 Signs the "Tesla Killer" Theory May Already Be Dead

By John Bromels – Updated Oct 1, 2019 at 3:38PM

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New all-electric competition from rival carmakers had investors worried... but those fears may have been overblown.

It's easier to win a game when you're playing without an opponent. And that's largely the position Tesla (TSLA -8.62%) has found itself in, particularly in the U.S. market. Early rivals in the all-electric vehicle contest such as General Motors' Chevy Bolt and the Nissan Leaf were smaller and, frankly, not as cool. 

But new all-electric offerings from Porsche (POAHY 0.54%) and a Mustang-inspired crossover SUV from Ford were cause for concern. It might be easy for an ultra-cool Tesla to stomp a subcompact hatchback, but could the Model S and Model 3 hold their own against a classic German luxury brand or an American icon? 

Early signs suggest that, yes, it might be able to do just that.

A Tesla Model S at sunset

Top electric vehicle maker Tesla has had little direct competition in the U.S. Image source: Tesla.

First in the ring

The first car that was getting hyped while in development as a potential "Tesla killer" has been unveiled: the Porsche Taycan. In August, it set an unofficial electric car track record on Germany's 16.12-mile Nuerburgring racetrack of 7 minutes, 42 seconds. And when a photo emerged of a Taycan driving past a broken-down Tesla Model S prototype -- which had also come to try its luck on the famed track -- it seemed like it might prove stiff competition. 

However, in September, the Model S "Plaid" prototype version set a new electric-car Nuerburgring record of its own at 7 minutes, 23 seconds, beating the Taycan by nearly 20 seconds. Now, there are a bunch of caveats to these times, not the least of which is that these were both prototype vehicles, and there's more to a car than how fast it can go. In terms of raw performance, though, Tesla's no pushover.

In terms of range, too, the Model S seems to outperform its German rival. The U.S. EPA states that a Tesla Model S "Long Range" (the base model) has a range of 370 miles. A European rating system, the Worldwide harmonized Light vehicles Test Procedure (WTLP), credits the Taycan with a range of just 279 miles, according to Porsche. Though this isn't precisely an apples-to-apples comparison, it looks like the Taycan won't have the range of a Model S either.

Most importantly for consumers, the Taycan's base model -- the Turbo -- starts at a jaw-dropping $150,900 in the U.S. (it's still a Porsche, after all). That's nearly twice as expensive as the base model of the Model S (currently retailing at $79,990). Even in the world of luxury automobiles, that's a price difference large enough to deter many buyers. The Taycan seems unlikely to eat into Tesla's sales in a significant way.

Up for (re)sale

List prices for cars can only tell you so much. A better measure of the value of a brand is what the cars can command at resale. Generally speaking, the more desirable the vehicle, the higher the price a used one can command.

That's certainly been true in the U.S. for Tesla, where the Tesla Model S has retained a greater percentage of its value than other cars in its class, according to a study by Autolist. The study indicates that a used Model X with more than 50,000 miles on it will lose, on average, 23% of its value. The Model S fares only a bit worse, losing 27% of its value (the Model 3 is still too new to get enough data on resales). Meanwhile, gas-powered vehicles lose an average of about 36% of their value after 50,000 miles.

Now we have evidence that Tesla also outperforms other electric carmakers on this front, thanks to a new report about the Chinese electric vehicle resale market, from the China Association of Automobile Manufacturers. There are numerous non-Tesla electrics available in China, including Roewe's ERX5 SUV and the Denza 500 sedan. Denza is a joint venture between Daimler's Mercedes and Chinese automaker BYD. 

In China, used Teslas are absolutely crushing the competition in terms of value retention, only losing between 23.8% (Model X) and 25.9% (Model S) of their value when used, compared to 52.6% for the ERX5 and 54.1% for the Denza, the closest competitors.

Now, it's possible that this is due to Teslas' perceived superior battery life. But perceived outperformance is a component of brand strength, and the data here seems to indicate that Tesla's brand can hold its own and then some against other EV manufacturers. 

Danger comes from within

None of this is proof positive that competition won't hurt Tesla's sales. With so many of the world's largest automakers eyeing the electric vehicle space, it's probably only a matter of time before one of them hits upon a winning formula for a full-size, high-performing vehicle at an attractive price. However, at the moment, there doesn't seem to be much danger of a competing "Tesla killer" vehicle knocking it off its pedestal.

That said, there are plenty of other concerns for Tesla and its investors, among them the company's lack of consistent profitability, and margin contraction as the cheaper Model 3 outsells the more expensive Model S and Model X. Unless management can solve those internal problems, the "Tesla killer" could turn out to be Tesla itself.

John Bromels owns shares of Ford and Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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