Will Big Auto eat the pioneering electric carmaker’s lunch?
With Tesla’s success, major automakers are rushing into the electric vehicle market, while governments are setting ambitious zero-emissions targets and drivers around the world are trying to go electric. While Elon Musk’s groundbreaking company currently dwarfs rivals by share value, it now faces new competition from traditional manufacturers with deep pockets and decades of experience making cars.
Will Big Auto Eat Tesla’s Lunch?
Experts say probably not any time soon – but the company, which is an electric vehicle pioneer with a cult following, needs to leverage its strengths to stay ahead of the race.
Legacy players are just beginning to mass-produce EVs but have the resources to scale quickly, analysts say. Tesla is likely to lose market share as other players start selling more electric vehicles. And almost everyone aspires to a piece of the market, from Ford and GM to Toyota, Hyundai, Honda, Porsche, Jaguar and Mercedes. But amid an explosion in global demand, Tesla’s expansion, manufacturing dynamism, and brand strength mean major automakers are moving up the hill and from far behind.
“Legacy businesses need to change dramatically,” said Tammy Madsen, a professor at Santa Clara University’s Leavey School of Business. “We see companies like General Motors becoming more agile than before.” But Tesla also has advantages that position it for long-term growth and survival, Madsen said. “They have leading market share, are focused on scale and continue to innovate,” said Madsen. “Anyone else following will have to move faster to catch up.”
Tesla, which moved its headquarters from Palo Alto to Austin last year, is the clear leader. The company’s Model 3 sedan has been the world’s best-selling electric vehicle for the past three years, and its Model Y was the third best-selling vehicle last year, behind China’s mini-auto Wuling, according to data firm EV-Volumes.com.
Still, Tesla remains a seedy upstart in terms of the total number of vehicles produced, even though it sells far more electric vehicles than any other company. Last year, the company reported delivering 936,172 electric cars to consumers, while General Motors alone reported selling 2.9 million vehicles of all types and Volkswagen 8.9 million deliveries. Big automakers, whose fossil-fueled modes of transportation have ruled the world, are stepping outside the box to embrace the EV market. Volkswagen – which has been involved in electric vehicles since 2013 and has been making it big since 2020 – said it sold 452,900 of them last year – a fraction of Tesla’s current production. General Motors CEO Mary Barra said in a February letter to shareholders that GM aims to produce more than 1 million electric vehicles in just over three years. Ford said in May that it expects 40% of its vehicles to be electric by 2030, citing overwhelming demand for its upcoming F-150 electric pickup, while Musk promised but hasn’t delivered a pickup since 2017 .
As governments around the world set goals for the electrification of transportation—the White House wants half of all new car sales to be electric by 2030, and California has mandated that all new cars and light trucks sold be zero emissions by 2035—legacy automakers competing furiously alongside startups for market share, brand awareness and a huge pile of loot: According to Allied Market Research, the annual global EV market is expected to grow from $162 billion in 2019 to $803 billion in 2027.
Dietmar Burkhardt, owner of the Sunnyvale Volkswagen car dealership, noted that skyrocketing gasoline prices have boosted interest in electric vehicles. Many drivers in the affluent and tech-savvy Bay Area are looking to ditch fossil fuels more than ever, and customers have pre-ordered more than 300 examples of VW’s new electric compact SUV ID.4. Demand for the car is strong in the US, he said.
“We have a lot to do,” admitted Burkhardt. “Volkswagen clearly understands that software development plays a huge role in the electric vehicle market and that’s something we’re quite a bit behind on, to be honest,” he said. “But huge investments are being made to get us on the right track and I am confident that we will solve this problem. If we have our heritage, making cars as opposed to electric motors with iPads connected is really an opportunity. It is a very exciting time.”
But older automakers need to convince buyers to choose their electric vehicles over Musk’s. Tesla has an advantage in the US with a strong brand tied to unique electric vehicle production, and has built similar enthusiasm in China and parts of Europe, said Cox Automotive analyst Michelle Krebs.
Tesla has just started producing vehicles at a plant in Berlin, after opening a plant in Shanghai in 2019 to serve the growing Chinese market. The company plans to open a new factory in Austin early next month, and Musk tweeted this month that Tesla, already operating its Fremont factory at full capacity, is considering “expanding it significantly.”
Chinese EV startups are vying for Tesla in Asia, and U.S. startups like Rivian and Lucid Motors, headquartered in East Bay, are pushing into the high-end Tesla feed market, Krebs noted. Big automakers could release models that consumers would see as strong alternatives to a Tesla, she added. “We’ve seen things like the Mustang Mach E and the VW ID.4 — they’ll nibble at the edges of Tesla, but the market as a whole is growing and Tesla remains dominant, at least in the US,” Krebs said.
Wedbush analyst Ives believes Tesla could be delivering 5 million cars annually within a few years. He reckons that EV buyers will spend $5 trillion globally over the next decade, with Tesla pocketing half of that and the rest going to big automakers and startups.
Still, Tesla is grappling with quality and safety issues: 11 recent recalls in four months, plus federal investigations into alleged “phantom braking” and accidents related to the company’s “Autopilot” driver-assistance systems. And Tesla owners are complaining about delays in servicing cars at dedicated centers, Krebs and Ives noted.
Tesla did not respond to a request for comment.
Many of Tesla’s competitors will play a key role in meeting demand for electric vehicles, but the exploding market means it’s not a zero-sum game, Ives noted. Tesla has an Apple-like cachet, and Musk is widely viewed as a brilliant, quirky visionary with a proven ability to execute big, Ives said.
“Ultimately, it’s Tesla’s world and everyone else pays rent,” he said. “It’s like a traveling circus that changed the auto industry forever.”
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