With a possible SEC investigation, a botched internal email and troubles sorrounding its mega-merger with SolarCity (SCTY, Financial), Tesla (TSLA, Financial) has had a troubling few weeks. Lately, bears have jumped on another major negative storyline: Tesla's heated competition with General Motors (GM, Financial).
Competition Is Rising in a Heated Electric Vehicle Market
For years, electric vehicles (EVs) were the laughing stock of the global transportation industry. They were ugly, had limited features and simply cost too much. As late as 2010, they represented less than 0.01% of global vehicle sales.
If the past few years are any indication, EVs are headed for exponential growth. Sales are up big every year in every major country, including the U.S. and China.
Even at its lowest expectations, EV deployment should continue to ramp. The Paris Accords, for example, call for around 100 million electric cars by 2030.
A big reason for rising adoption has been falling costs. The Department of Energy estimates that battery costs need to fall to $125 per kilowatt-hour to achieve cost-parity with conventional vehicles. We are fast approaching that level.
Tesla’s battery packs were estimated to cost $240 per kWh in 2014. Today, they are likely under $190 per kWh. Tesla thinks it can hit price-parity by 2020. GM believes it will by 2022.
With the future in sight, a significant amount of car manufacturers have ramped their own EV line-ups. Today, investors see Chevrolet's new Bolt model as a potential de-throner for Tesla.
Is the Chevy Bolt a True Competitor?
Internally, GM has referred to their all-electric Bolt as their “Tesla fighter”. The MIT Technology Review recently came out with a headline titled: "Chevrolet Bolt Has Totally Trumped Tesla’s Model 3".
Is something that looks like this really going to compete with the Tesla Model 3?
If Apple (AAPL, Financial) has taught investors anything, it should be that branding and design often trump weaker specifications. For its iPhone, a straightforward user experience is enough to sway millions of users to pay a premium for its product, even if it is technically inferior to some of its competition.
The Tesla 3 should prove similair. First, it sports a much sleeker look than the Bolt. Tesla’s Supercharger network and Autopilot software also play to what consumers think they demand. Most importantly, like Apple, Tesla has the brand power and respect that few (if any) competitors can match.
The electric vehicle market is expanding at an incredible rate; there's certainly enough room for numerous manufacturers. Even if the Chevy Bolt is successful, it's highly unlikely that it can unseat Tesla from its EV throne.
Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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