The electric car market has grown rapidly in recent years. As technology and infrastructure improve, this sustainable form of transport becomes more and more viable.
Aug. 29, 2020
The leading light of the electric car sector has undoubtedly been Tesla (NASDAQ: TSLA). Pushed forward by its eccentric CEO Elon Musk, the company has carved out an impressive share of the market.
Legacy car manufacturers are playing catchup, with some pure-electric players like the so-called ‘Tesla of China’, NIO starting to gain serious traction. The latter’s sales of premium electric SUVs rose 322% year-on-year in July. Can these companies truly compete with Tesla?
Tesla’s dominance
Tesla has been dominating the electric car sales in both the U.S. and globally. Its electric vehicle market share in the U.S. for the first half of 2020 was about 81.66%.
While the pandemic shut down slowed Tesla’s manufacturing, it has been weathering the storm nicely. The Tesla Model 3, Tesla Model Y and Tesla Model X were the top three selling electric cars in the US so far this year. The Tesla Model S was in fifth place.
With demand increasing in the likes of China and new technology and models being rolled out, it looks like Tesla will have a stranglehold on the market for some time.
Who are Tesla’s competitors?
Many of the competitors for Tesla in the electric car market are traditional auto companies. They realize that a significant transition towards electric is underway and they don’t want to get left behind. These companies are pouring massive sums of money into research and development in order to build an offering that can compete with Tesla.
General Motors’ Chevy Bolt electric vehicle was fourth on the list behind three Tesla models for US sales in the first half of 2020. It’s an impressive car, with its all-electric range of 259 miles and quick acceleration being some of the highlights.
The Nissan Leaf was one of the early market entrants, launching in the U.S. in 2010. Through the end of 2019 it was the all-time best selling electric car globally. However, it has since been bypassed by the Tesla Model 3.
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Incoming Ford CEO Jim Farley is getting ready to dive deeper into digital and electric investment when he takes over in October. The company is launching the Mustang Mach-E, a sports utility vehicle that is all-electric and combined with one of the most iconic car brands.
Some of the pure-play electric vehicle companies that are targeting Tesla include Nikola (NASDAQ: NKLA) and NIO. Nikola only went public in June, with its main focus being on commercial transport rather than Tesla’s focus on personal transportation.
Nikola is involved in the likes of heavy-duty freights that have impressive ranges. It certainly is coming at the electric vehicle market from a different angle.
NIO has been dubbed the ‘Tesla of China’, with its shares constantly hitting all-time highs. The company has gotten $1 billion from state-owned companies to eliminate any liquidity risks following the pandemic. It also has launched a battery subscription program to make its vehicles more affordable and it is starting to look at global expansion. It could be in the European market by the end of 2020.
The company exceeded expectations with second-quarter results, with gross margin per vehicle hitting a high of 9.7%, it recorded its lowest operating loss and became operationally cash flow positive for the first time.
Anything worth investing?
Tesla’s share price continues to significantly outperform expectations. Other companies are looking to follow suit as they try to develop their electric vehicle offerings to start to take some market share from Tesla. If they successfully do so, handsome gains are likely.
General Motors has seen a tough few years, but it has been aggressively cutting costs and it looks like it will get out of the pandemic in better shape than a lot of its competitors. There are rumors that General Motors could spin off its electric vehicle business into its own company.
With existing GM shareholders likely to receive shares in the new company, this would likely be a lucrative move for investors. GM looks the best positioned out of the legacy car manufacturers to compete with Tesla and to see significant capital appreciation in the coming years as a result.
Pure-plays like Nikola and NIO also hold a lot of investment promise. Nikola is targeting an area that is relatively untapped and NIO has the ability to become a major personal transportation competitor of Tesla. Both are worth considering going forward at the right price.
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