Tesla’s biggest competition for the Model 3 will not come from other electric vehicles

Hot wheels.
Hot wheels.
Image: Reuters/Joe White
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Tesla says more than 1 million people will be buying its electric cars annually by 2020, many of them the Model 3 arriving on July 28. Given today’s electric vehicle (EV) market, that destination is still a long way off.

Though it gets talked up a lot, the EV market has yet to launch. Sales of electric cars represent just 1% of the record 17.55 million cars sold last year in the US. GM’s electric flagship, the Chevy Bolt, hasn’t seen spectacular sales despite sunny reviews (GM announced it was pausing factory production this summer to help clear inventory off its lots). Other models aren’t exactly driving themselves off the lot either.



Despite this, Tesla is undeniably on top. The company’s Model S sedans and Model X SUVs accounted for more than half of the EV market in the US in 2016, more than the next 12 models combined. Tesla itself is one of the world’s most valuable carmakers just 14 years after its founding as a Silicon Valley startup.

This might seem like unalloyed good news for Tesla, but it’s not. For CEO Elon Musk, the competition isn’t other EVs; it’s gasoline engines. Tesla needs to take on the conventional car market to survive, and it needs buyers to defect en masse from fossil fuels. That’s not happening, yet.

The launch of the Model 3, the company’s first mass-market electric vehicle, on July 28 will mark the beginning (or perhaps the end) of Musk’s quest to deliver an affordable, superior EV to the world’s driveways and highways. The $35,000 electric vehicle (before incentives) has stirred up a frenzy of interest since Tesla announced it in 2014, and more than 375,000 people forked over a $1,000 deposit to get on a waiting list for the car.

Tesla must find a way to sell cars to drivers who still view electric vehicles with suspicion or indifference, or it will falter under the burden of its costly (and mostly profit-less) expansion. Until recently, Musk had the breeze at his back. The company’s stock price soared (too much, Musk has asserted), and production numbers were back on track after some bumpy years. But in July, manufacturing delays arose. Skittish investors started to sell, and Tesla’s market cap, once eclipsing every other carmaker, was sent back to second place, just behind GM. Its stock shed more than $10 billion in market value over two weeks from a June 23 peak of $63 billion. Now, with all eyes on the Model 3, critics say Tesla may stall out.

“Elon Musk likes making history, which is good because he’ll have to accomplish several unprecedented feats to pull off a successful Model 3 launch,” wrote Karl Brauer, publisher at Kelley Blue Book and Autotrader. He cited a production increase never achieved by any automaker before (400,000 Model 3s in 2018 from only about 35,000 in 2017), a relatively small number of dealers and service centers, and less durability testing than all previous high-volume vehicle.

Once the Model 3 clears these hurdles, it must then find at least as many people willing to buy its car ever year that it now has in its entire backlog. ”This is very unlikely in the US market anytime soon,” warns Sam Abuelsamid of the consulting firm Navigant. With the car market showing signs of softening, analysts predict US car sales will plateau over the next decade, perhaps even declining by about 15%, potentially dragging down EVs with it. Tesla, with only three models, must expand its stable at the same time it’s ramping production and fighting market headwinds.

But advocates say EV market growth will defy the larger market trends. EV sales spiked 40% last year over 2015, picking up from a 32% annual growth rate over the last five years. The Union of Concerned Scientists estimates if the trend continues, 10% of all US cars will be fully electric by 2025. To do this, carmakers will have to sell and market their EVs just like they do their conventional models—something that has not generally been done. Until now, EVs have largely been compliance cars: vehicles sold and marketed (half-heartedly) by big automakers primarily to meet fleet emission regulations in the US and abroad.

That’s changing as more than a dozen new EV models are set to debut by 2020, competing head to head with conventional cars on style and performance. Rebecca Lindland, an automotive analyst for Kelley Blue Book, says Tesla has a clear advantage: people buy Teslas because of the brand, not because they are EVs.

“People have an emotional response to Tesla, but not necessarily to Leaf, Bolt, and other models” said Lindland in an interview (she has a deposit on a Model 3). “People are buying into [Musk’s] mission. On some level, it’s to save the world, and he has a product to back it up as well.”

That’s helped by the fact that Tesla is far and away the most visible EV brand. Analytics and data visualization firm Quid examined 3,142 US news articles on electric vehicles in 2017. It found that Tesla was mentioned in coverage across almost every major EV topic, and appeared in about twice the number articles compared to its nearest competitor, the Chevy Bolt.


Whether that’s enough to deliver Tesla enough market share is an open question. “Is it doable?” says Lindland. “Absolutely.” Toyota, for example, sells more than 250,000 cars per month in the US. But competition will be fierce. BMW will release two new electric models by 2020, and is accelerating its electric-car effort across its entire lineup. Mercedes plans to launch four EVs by 2018. Volvo will go all-electric by 2019. The Chevrolet Bolt is already on the road. Prices on EVs will go down at the same time that gas prices remain low. Even when the total cost of ownership for EVs falls below that of conventional cars (expected to happen in the next few years), a slightly higher sticker price may deter many buyers, argues Abuelsamid at Navigant. ”It’s going to be tough for mainstream consumers to make the jump until affordability gets much better,” he wrote.

But the biggest barrier to selling Model 3s to the masses? It may just be knowing about them, reports Elektrek. A recent survey of 2,500 American found that 60% were still “unaware of electric cars,” eclipsing concerns such as range or charging station availability. Here, even Musk’s showmanship may not be enough to move the market. The industry as a whole will need to find a sales strategy that equates electric cars as something suitable for any car buyer. Once buyers see an electric vehicle not as a different type of car, but as a better one, then the market for EV can truly take off.