Will we see a Tesla killer?

The demise of Tesla has been predicted for a while. There are three basic reasons:

  1. Electric vehicles is an unproven market

  2. If proven, traditional auto makers will make better vehicles

  3. Tesla is led by a genius, not a businessman

Let's address each of these.

Vehicle electrification is no longer in doubt

The future of passenger transport is electric. Opinion may still be divided, but the facts aren't. Every major vehicle manufacturer has an electrification strategy. Auto industry analysts cover electrification as part of their regular work, not as an exception. The only people still advocating a pure fossil fuel future in the auto industry are people not involved in it.

The biggest change agent has been Tesla. They may not sell at volume in global terms, but they have gained a lot of attention in the industry. We're at an inflection point in the auto industry. Everything looks the same on the surface. Most of the cars sold are pure fossil fuel cars, even as the price of fossil fuel increases. That inertia is not a straight line trend. The auto makers are watching the trends from a vantage point of high fixed costs, long lead times on design and tooling up production lines.

Under the surface, there is a massive upheaval going on. Panic is an appropriate way to describe what some auto makers are feeling now. BMW's CEO got fired because he didn't have the answers to what's happening in the market.

Consider some other background issues:

  • The theory of peak oil is debatable, but oil is getting less easy to access, and more costly to pull out of the ground.

  • Oil supply is impacted by geopolitical instability. Some key suppliers are not good examples of democratic societies.

  • Concerns over climate change and pollution are becoming bigger social concerns in many countries.

  • Auto makers have been caught cheating emissions control tests. That indicates we're hitting the wall on emissions control. Fossil powered cars aren't going to get much "greener"

  • Renewable energy is coming online at a rapid rate, in some cases destabilising the economics of the power grid, at times even causing negative wholesale prices in some markets

  • Fossil vehicles powered on diesel are in trouble. Pollution in cities (like London) is causing serious health issues and the Diesel Particulate Filter (DPF) systems is proving to be a maintenance and reliability issue in many diesel vehicles.

Some people have dismissed Tesla as a niche player. It is accurate to call them a niche brand in the auto industry. It would be inaccurate to dismiss them. Nobody serious in the auto industry is currently dismissing them. That's because electrification is now inevitable. The tipping point as to whether or not this will happen has passed. The adoption curve for mainstream buyers is yet to come.

Will the traditional auto makers crush Tesla?

Anything could happen, but it's almost certain this will not happen. The industry had their window and they've missed it. Tesla is now at volume production. Every vehicle they make is sold. Every vehicle.

From 2012 to 2018 the Tesla Model S had no challenger. None. There were other electric vehicles,  but they were short range compromise vehicles. If you are going to "kill" a company you need to make a product that directly challenges it. Until late 2018 when the Jaguar I-Pace was launched, nothing came close to the Model S. Motor Trend magazine declared the 2013 Model S as the Ultimate Car of the Year winner. Ever.  

A number of auto makers now have cars in production that line up against Tesla's Model S and Model X:

  • Jaguar I-Pace

  • Mercedes EQC

  • Audi E-Tron

  • Porsche Taycan

All are great cars, but they will not kill Tesla. Instead they demonstrate the lead Tesla has. It wasn't just about sticking an electric motor and big battery on four wheels. None of the existing auto makers can match range or speed. The recent launch of the Porsche Taycan confirmed this. Porsche compete on performance, it's their brand promise. They couldn't match Tesla, let alone beat it on key specifications.

It's not all about the luxury cars though, what about mass producers?

  • Hyndai Kona EV

  • Kia Soll and Niro

  • GM Bolt

  • Nissan Leaf

There are a couple of good cars on that list which deserve to do well. Let's strike out the Leaf though, at the price, Nissan has badly misjudged range for the market and the lack of proper battery cooling was unforgivable. Good luck getting hold of any of the others. The Bolt isn't sold in many markets and the Korean efforts are good, but production constrained. They can't get the batteries to make the cars in volume. Oops.

The Tesla Model 3 is already in volume production, with a factory in China about to start production in the world's biggest market. The Chinese government offered rule waivers, incentives for Tesla and waived taxes (including sales taxes). A factory that didn't exist 12 months ago is about to start production. Electric vehicle sales in China dipped last month, which indicates people are holding off buying in anticipation of production.

Far from crushing Tesla, the auto makers should be very concerned about a niche player growing to eat their market. I forecast a difficult future for the like of Nissan-Renault and Fiat-Chrysler. Ford will probably retreat to utility vehicles. Toyota should survive, but will likely be in denial so long they lose most of the market share they currently enjoy in passenger vehicles. It's likely we'll see Chinese brands Geely, SAIC and BYD grow as others stumble.

Can Elon Musk run a business?

Elon Musk doesn't think like the rest of us. So when we look at behaviour that seems odd (he launched his car into space on a rocket) we think it's risky or irrational.

If you were talking about a bank CEO, I might agree with you. For a product visionary though, I prefer someone more like Steve Jobs than a bank CEO. Elon Musk has decided the way to solve problems in the world is through innovation and product development. So far, people are willing to back him with capital, and customers are beating down his door, both for Tesla and for SpaceX.

I recommend watching this video of investor Chamath Palihapitiya talking to CNBC, which says it better than I can.

If anything might "kill" Tesla it could be Elon Musk's ambition and vision outstripping the market's ability to absorb his ideas. But the brand will survive. Plenty of buyers, from auto makers to technology giants would have active contingency plans to acquire the brand in the event it comes on the market.

People have been betting against this company and been wrong consistently, Tesla is going nowhere.