What Will it Take?
The world automobile industry is planning on a nearly all electric (or plug-in) market for its products by the end of this decade. Not just the U.S. market, but Europe, Asia, and the Global South as well.
As of now, there is one dominant player in the segment: Tesla. Tesla did start the ball rolling. Elon Musk, if nothing else, was the idea man. Tesla got off to an early start and hasn’t relinquished its lead yet. But competitors worldwide are gunning for it.
Tesla’s Secret Sauce
What is Tesla’s secret? Being first to market bestowed some advantages – such as perfecting of large-scale manufacturing capabilities for electric vehicles. But Elon Musk is NOT Henry Ford. Much of Tesla’s touted “unboxed” process is merely further development of existing auto manufacturing norms – lean production, high levels of precision automation, basically invented by Toyota some 50 years ago. And Tesla has never unionized, but penetration by organized labor is more a matter of geography and culture than anything else; state and local subsidies are sought by all manufacturers in the American South more than the Rust Belt.
Besides anti-union bias and advanced manufacturing technology, two things have stood out about Tesla since its founding: very appealing minimalist style, and total rejection of independent dealers to sell its cars! Beauty is in the eye of the beholder, but Tesla has created a brand with ultra-hip, simple appearance. Many competitors are trying to copy this look. Freedom from the drain of franchised dealers selling its product has worked in Tesla’s favor, however – less overhead from selling directly to consumers than from damage to the brand by untrustworthy franchisees. So far, not much activity in this direction has come from other manufacturers (possible exception: Ford?). My recent car-buying experiences from new car dealers have been less than satisfying and my hunch is that many consumers feel the same way.
Reliance on independent dealers hampers competitors in another way, too — dealers may be reluctant to sell the new EVs. GM had to threaten dealers with losing their franchise if they didn’t accept the upgrades needed to sell EVs.
Tesla Conquers the World?
Worldwide, Tesla’s market dominance only seems seriously threatened at this point in China, where some local competitors (notably BYD) have managed to dethrone Tesla from the number one slot. The Chinese market is especially urbanized as well – better for EV infrastructure. China is the world’s largest automobile market overall. But Tesla is making more aggressive moves in India, where it plans to release an India-specific low-priced model with appropriate subsidies from Narendra Modi’s government. India is now the third largest automobile market in the world – after China and the U.S.
European auto markets have their own EV entries (VW, Stellantis, BMW, Mercedes, Volvo – now a subsidiary of China’s Geely). But the hottest competitor to Tesla in the Euro-EV market is Hyundai/Kia from Korea! A keen observer of the U.S. auto market (me?) might have noticed the phenomenal growth over the last few years of those Korean brands on our streets. Dedicated EV models from all three Korean brands (Hyundai, Kia, Genesis) have clearly juiced that segment in the U.S. – despite not being covered by the Inflation Reduction Act consumer incentives: $7500 if they would just start manufacturing their EVs here. Volkswagen can do it, why not the Koreans (or Toyota or Honda, for that matter)?
In the U.S. market, GM and Ford are both bullish on the prospects of overtaking Tesla at its own game. Stellantis is more modest (though electric Jeeps are coming). Toyota’s U.S. presence for its electric vehicles may be slower, with some delay perhaps due to its emphasis on hydrogen fuel cells. Honda, for now, seems to be happy borrowing technology from GM; look for the Honda Prologue on the GM Ultium platform next year. Nissan, despite early entry with the popularly-priced Leaf in 2010, hasn’t done much lately. In the U.S., you can buy a VW ID.4 with that $7500 tax credit, or a Hyundai/Kia EV without it, priced from the mid-$30K range.
Infrastructure: Supercharger!
What about infrastructure for EVs? This is the main constraint currently. Where can you recharge them? All countries in the developed world are engaging in massive build-out projects for this purpose but another Tesla head start was their proprietary “Supercharger” network – good only for Tesla vehicles. Nobody else went this way. And recently both General Motors and Ford signed an agreement with Tesla to allow for compatible charger connections with that Supercharger network. You still pay Tesla for the electrons, but now can pull into one of those Tesla stations on the highway and charge up your Mustang Mach-E. Expect more manufacturers to jump onboard. Urban charging – parking lots and garages, on-street parking, etc. – remains a problem. Some of this is a local matter (zoning restrictions in many cities), but much of the difficulty is with investment. Nobody is going to electrify rust belt relics like Flint, Michigan! There’s a reason Tesla has taken off among a rather affluent market segment – not just that those people want whatever is new and flashy – but the places where they live are more likely to build the charging infrastructure where they go, and they live in single-family homes with driveways. But change is coming, say Tesla’s global competitors. Infrastructure is being built – with or without government encouragement.
Even if charging stations are available, it still takes a long time to charge a battery from empty on a typical BEV (Battery Electric Vehicle). Battery technology is advancing, however. Newer EV models tend to have batteries that store more juice and can charge faster than earlier models. Often, more expensive cars have shorter charging times – a $90K Tesla Model S Long Range has a 405-mile range, and can fully charge in 27 minutes at a proprietary Supercharger station. The $27K Nissan Leaf has a mere 150-mile range and can get an 80% charge in 40 minutes at a Level 3 (DC) station, like the ones rapidly emerging in cities and along highways.
Dethroning Tesla requires two things: a) Tesla’s hold on the upper middle classes around the world must be challenged by competitors; and b) lots of investment in manufacturing and research from those competitors. Judging from the interest level of the world’s auto titans (Toyota remains the biggest), it may take a while. Maybe by 2035 … with some help from the characteristically mercurial Elon Musk?
— William Sundwick
Warp and Woof 