The Fool's own senior auto analyst, John Rosevear, sits down with Richard Engdahl for an in-depth look at Tesla (TSLA +3.01%) and the electric vehicle market.
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 (VLKAY +2.23%). 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 (GM +4.19%), like Toyota (TM +2.04%), like Ford (F +3.46%), like Nissan (NSANY +2.17%), 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.
