The incumbent auto manufacturers entering Tesla’s space might be bad news for them, but good for the EV sector
When you think of electric vehicles (EVs), you probably think of Tesla. As the first significant player in the EV market, Tesla turned electric vehicles into desirable status symbols, thereby building the foundations for its success. However, recent developments mean that this could all be about to change…
In what appeared to be direct challenge to Tesla’s standing, in September Audi launched its e-tron electric SUV in San Francisco. This marks another move from a legacy auto manufacturer into the electric vehicle market, with premium EVs being released by other brands such as BMW, Mercedes-Benz, Jaguar Land Rover and Volvo. As well as contributing to the expansion of the EV sector as a whole, these companies are directly competing for Tesla’s dominance. Questions over the management of the business and the recent behaviour of its billionaire founder, Elon Musk, are only going to add fuel to this electrical fire.
The big questions at Tesla
In a direct face off between the Audi e-tron and Tesla’s premium Model X, it doesn’t seem that the latter has anything to worry about. The battery on Audi’s EV has a lower capacity than the Tesla model, and there are concerns that its range won’t measure up to the 295 miles of uninterrupted driving that some versions of the Model X can achieve. If this leaves you wondering what all the fuss around Tesla is about, consider this: EV design, price and performance at Tesla is only part of the story. Production concerns, management issues, and the ever more erratic behaviour of Elon Musk are starting to sow serious seeds of doubt around the future of the company.
Waiting in line for production
One of the main disadvantages of being a disruptor is that you typically lack the infrastructure of legacy businesses. Established channels in sales, supply chain and manufacturing are just some of the benefits enjoyed by incumbent auto manufacturers, many of whom have a proven track record of producing thousands of cars per day. Tesla, in contrast, has a history of missing production goals. The hype around Tesla may have allowed it to get away with long waiting lists and unfulfilled orders up until now, but the diversification of the market could easily see potential customers turn to the competition.
Additional boons to established auto makers are the mass appeal of their brands, customer loyalty, and existing capital. It takes around $1bn to design and engineer a new EV model – a funding challenge that legacy manufacturers are used to meeting. Interestingly, $1bn is also the sum that was ploughed into Silicon Valley based Lucid Motors in September by the Saudi Public Investment Fund (PIF), which is seeking to lessen the kingdom’s dependence on oil. With the Chinese government also muscling in on the EV action in a bid to reduce its notorious levels of air pollution, Tesla can no longer rely on its first mover advantage to keep it afloat.
Tweeting to destruction
In today’s business climate, it only takes a single off the cuff online comment to wreak havoc on the markets. Ever more frustrated by the restrictions incurred by Tesla’s status as a publicly traded company, Elon Musk tweeted in August that he wanted to take it back into private ownership. As Tesla’s share price soared at the news, he then backed this up with an official blog post on the website, citing a desire to stay focused on the long term mission of the company, without ‘perverse incentives’ for people to try to harm what they are trying to achieve. This appears to refer to Musk’s increasing frustration at having to deal with the regulatory trappings involved with being a public business, and his anger at short sellers, who he blames for harming Tesla’s reputation and undermining the company’s success.
Perhaps predictably, a few weeks after this initial statement about privatisation, Musk backtracked and announced that Tesla would in fact remain public. Allegations of the intentional manipulation of stock prices soon followed, as did a US Department of Justice probe, fraud charges, a £15m fine and Musk’s removal as chairman of Tesla. This course of events, when combined with accusations of poor workplace culture at Tesla, a high profile lawsuit against a former employee accused of hacking and theft, and – perhaps Musk’s most infamous piece of negative PR – a slur tweeted about a British cave diver, has left many people questioning the future of Tesla, at least with Musk at its head.
For now, at least, the picture is clear. The man who has frequently been feted as the saviour of humankind may have taken a turn to the dark side – and Tesla’s fortunes will suffer for it. Legacy car manufacturers, there’s never been a better time to enter the EV space.
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