In the wake of Tesla’s success, major automakers are jumping into the electric vehicle market as governments set ambitious zero-emissions targets and drivers around the world seek to go electric. While Elon Musks’ pioneering company currently eclipses its rivals in market value, it now faces a new level of competition from traditional manufacturers with deep pockets and decades of experience in making cars.
“It’s an arms race for electric vehicles,” said Dan Ives, analyst at Wedbush Securities. Tesla has “a target in their back – the entire auto industry is after them.”
Will Big Auto eat Tesla’s lunch?
Experts say probably not anytime soon, but the company that pioneered electric vehicles with a cult following needs to capitalize on its strengths to stay ahead in the race.
Analysts say legacy players are just getting started in mass production of electric vehicles, but have the resources to scale quickly. Tesla will likely lose market share as other players start selling more electric vehicles. And just about everyone is looking for a slice of the market, from Ford and GM to Toyota, Hyundai, Honda, Porsche, Jaguar and Mercedes. Yet amid a surge in global demand, Tesla’s expansion, production momentum and brand strength mean the big automakers are entering the race uphill and from afar 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 nimble than before.” But Tesla also has advantages that position it for long-term growth and survival, Madsen said. “They have a lead in market share, are focused on scale and continue to innovate,” Madsen said. “Everyone else following has to move faster to catch up.”
Tesla, which last year moved its headquarters from Palo Alto to Austin, is the clear frontrunner. The company’s Model 3 sedan has been the world’s best-selling electric vehicle for three years, and its Model Y was the third-best last year, behind China’s Wuling minicar, according to data firm EV-Volumes. com.
Yet Tesla remains a rambling upstart in the total number of vehicles produced, despite selling far more electric vehicles than any other company. Last year, the company said it delivered 936,172 electric cars to consumers, while General Motors alone said it sold 2.9 million vehicles of all types and Volkswagen declared to deliver 8.9 million. Major automakers, whose fossil fuel vehicles have ruled the world, are swooning to embrace the electric vehicle market. Volkswagen – which has been in electric vehicles since 2013 and has gone big since 2020 – said it sold 452,900 last year – a fraction of Tesla’s current output. General Motors CEO Mary Barra said in a February letter to shareholders that GM aims to produce more than one million electric vehicles in just over three years. Ford said in May it expects 40% of its vehicles to be electric by 2030, and cited overwhelming demand for its upcoming F-150 electric pickup, while Musk promises but hasn’t delivered a pickup since 2017.
As governments around the world set transportation electrification goals — the White House wants half of all new vehicle sales to be electric vehicles by 2030, and California has ordered all cars and trucks new lightweights sold will be zero emissions by 2035 – legacy Automakers, along with startups, are furiously jostling for market share, brand recognition and a huge pile of loot: the annual global electric vehicle market is expected to grow from $162 billion in 2019 to $803 billion by 2027, according to Allied Market Research.
Dietmar Burkhardt, owner of Sunnyvale Volkswagen dealership, noted that soaring gasoline prices have increased interest in electric vehicles. Many wealthy, tech-savvy Bay Area drivers are more eager than ever to leave fossil fuels behind, with customers in his batch pre-ordering more than 300 of the company’s new ID.4 electric compact SUV. VW.. Demand for the car is strong across the United States, he said.
“We have a lot of work to do,” Burkhardt acknowledged. “Volkswagen clearly understands that software development is a big part of the game in the electric vehicle market and that’s something we’re frankly a little behind on,” he said. “But huge investments are being made to get us on the right track and I’m confident we’ll fix that. Having the heritage that we have, of making automobiles, as opposed to electric motors with iPads attached, is really an opportunity. It’s a very exciting time.
But mainstream automakers need to convince buyers to choose their electric vehicles over Musk’s. Tesla has an edge in the United States with a strong brand tied to unique electric vehicle production and has generated similar enthusiasm in China and parts of Europe, said Cox Automotive analyst Michelle Krebs.
Tesla has just started producing vehicles from a factory in Berlin, having opened a factory in Shanghai in 2019 to serve the growing Chinese market. The company plans to open a new plant in Austin early next month, and Musk tweeted this month that Tesla, which is already operating its Fremont plant at full capacity, is considering “significantly expanding it.”
Chinese electric vehicle startups are competing with Tesla in Asia, and U.S. startups such as East Bay-headquartered Rivian and Lucid Motors are moving into the high-end market powered by Tesla, Krebs noted. Major automakers could offer 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 chip away at Tesla’s edges, but the market is growing globally and Tesla remains dominant, at least in the United States,” Krebs said.
Wedbush analyst Ives thinks Tesla could deliver 5 million cars a year within a few years. He expects electric vehicle buyers worldwide to spend $5 trillion over the next decade, with Tesla raking in half and the rest going to major automakers and startups.
Still, Tesla has struggled with quality and safety issues: 11 recalls in four months recently, as well as federal investigations into alleged “phantom braking” and crashes related to Tesla’s “Autopilot” driver assistance systems. ‘business. And Tesla owners complain about backlogs in servicing cars at special centers, Krebs and Ives noted.
Tesla did not respond to a request for comment.
Many Tesla rivals will play a key role in meeting demand for electric vehicles, but the explosion market means it’s not a zero-sum game, Ives noted. Tesla has an Apple-like cachet, and Musk is widely seen as a brilliant, offbeat visionary with a proven ability to execute big plans, Ives said.
“It’s ultimately Tesla’s world and everyone pays rent,” he said. “It’s like a traveling circus that changed the auto industry forever.”