Tesla has no competition in the electric car market

Electric cars have been the subject of frenetic discussions for almost a decade. Gossip grew considerably as Tesla grew and sometimes became the most valuable US automaker in terms of market capitalization, ahead of the Detroit Big Three: General Motors, Ford and Fiat Chrysler Automobiles.

Certainly, there are many more electric vehicles on the market over the next few years than on the market for 10 years. This led opponents to Tesla, like Jim Chanos, who created a shorts often proclaimed. position in Tesla shares – adopt a thesis on car manufacturer Elon Musk.

Tesla is in trouble, the argument goes, because the competition is coming.

Nice soundbite, but totally wrong at best and misinformation at worst.

The global car market is huge. In the United States, about 17 million new vehicles were sold in 2017. In China, the market could reach $ 40 million in annual sales if the most optimistic forecasts are correct. By the end of 2018, nearly 100 million light vehicles – cars and trucks designed to carry passengers and moderate quantities of goods – will be sold.

Almost all will be fueled by oil, gasoline or diesel. How many are almost all? That would be 99%. EV sales are expected to be around 1%.

This is the "market" about to be faced with Tesla's competition. Which means that it is not a market at all. It's an experience.

We still live in a world of gas

Over time, it will become less of an experience as sales of electric vehicles pick up speed. But let's be honest: if the global EV market doubles, the gasoline engine market will still be 98% of everything. If electric vehicle sales are up ten times their current levels, the internal combustion engine will be 90%.

That's not to say that Tesla can not do good business with his slice of pie. If it's posting double-digit profits by selling mostly luxury electric cars to early adopters well-heeled, there will be nothing to discuss.

But as for the rest of the industry, major automakers are not really looking to support Tesla because they are simply aiming to be in the EV space. Tesla has served the extremely useful purpose of validating a market for electric vehicles, and Porsche, Jaguars, Audis and Mercedes around the world do not want to fall too far behind.

These automakers also need to add zero emission vehicles to their ranges to meet more stringent requirements in global emissions and fuel consumption. That's why they are ready to manage their EV portfolios at a loss. If you look at a company like FCA, whose former CEO, Sergio Marchionne, regretted losing more than $ 10,000 for every electric Fiat 500 he was selling, you see a car maker who lives with full trucks and SUVs magnitude. -sipping products.

But these vans and SUVs are incredibly profitable. To maintain this activity, electric vehicles and hybrid gasoline vehicles must be sold.

I realize that it is a depressing reality. But there is no point in denying it.

Nor is it reasonable to accept the idea of ​​a future competitive assault on Tesla as a disastrous prognosis. At the current rate of production, Tesla can reasonably expect to deliver 200,000 vehicles a year globally. The new plants would obviously increase this number two or three times, again to a reference level, but still a lot fewer vehicles than GM sells each year.

Electric cars are a scientific project

This is not a market that, in 2018, is worth it to spend some serious money to be competitive. Pickup trucks in the United States are such a market. It's the same for the smaller sedans in Europe. Increasingly, compact crossover SUVs are becoming a highly competitive market.

EVs are a scientific project. That's why Tesla stands out: it sells so much EV in relation to the size of the market that it typically compares its vehicles, wrongly, to petrol cars, as if consumers were trading crossed with different propulsion technologies. They are not There are just a lot of people with resources who want a Tesla. The brand is powerful. And the cars are pretty cool.

With regard to dozens of other car manufacturers on Earth, it is not certain that they would actually produce electric vehicles if there was no evidence to take the step and the other 99% of car market did not do it. so well (the United States recorded a record or near record sales pace for three consecutive years). On top of that, most people who have talked to me about competition and Tesla are not worried about it. They think that the next 10 years will present an optimal sales scenario for all boats.

An electric vehicle is only a vehicle and until a certain level of scale arrives – if it ever does – the margins are not very attractive. Or they are nonexistent. Or simply, you know, negative. Car manufacturers know all the economic aspects of car manufacturing. If you build small ones, you earn less money. If you build cars, nobody wants, you lose money. If you build successful cars, you can publish profits, but they can be very varied. And at the bottom of the scale, we are talking about simple numbers.

New sectors of activity that may or may not be electric

This is why major automakers have begun to create new business sectors in terms of mobility or transportation as a service. GM has its self-driving Cruise division, which she plans to combine with riding; A recent joint investment with Japan's SoftBank has estimated activity at $ 11.5 billion, about one-fifth of GM's market capitalization.

Waymo, formerly the Google Car Project, wants to follow a similar path. Morgan Stanley thinks it could be worth $ 175 billion.

As Mark Fields, former Ford CEO, has often said, these services could generate margins of 20 to 30%. At the moment, Ford hopes to reach 10%, at best, with its core automotive business.

Sherif Marakby, CEO of Ford's Autonomous Autonomous Vehicle Division, Ford AV LLC, recently told me that Ford did not want to voluntarily join EVs for some of its potential new ventures. recharge time.

This does not mean that EVs are likely to be ransoms or that the larger project – the Tesla project – to eliminate exhaust emissions should be abandoned. Electric cars have been abandoned to gasoline vehicles for more than a century, but since about 2010, they seem to have entered a tipping point where their small market is stable and sustainable.

If we look to another century, it is a safe bet that EVs will be a much larger market and that the entire current structure of global automotive brands will collapse and be replaced by new players operating on the same bases. monopolistic or quasi-monopolistic. would indeed be very competitive.

It is at this point that we can start talking seriously about the competition to which Tesla and all the others are facing – in very long years.