“I don’t see it [the Chevy Bolt] as a competitive threat.” Elon Musk, January 14, 2015
I recently recounted a discussion around whether competition was good or bad for startups, and referenced Tesla as a pioneer that has benefitted from having its competitive space to itself. Soon after writing that piece, Chevy announced its new Bolt electric vehicle—a direct competitor to Tesla’s planned new “mainstream” electric sedan.
GM, even after all its travails, still sold approximately 115 times more cars than Tesla last year (no, that isn’t a typo!). Surely the prospect of GM really focusing on the EV market must send Tesla’s stock tumbling and have Elon Musk quaking in his boots, right? Seemingly not. Tesla’s stock price actually went up after GM’s announcement and Elon seems remarkably relaxed. Why?
Well, some of the dynamics discussed in my last piece are definitely relevant here, and perhaps worth expanding on in the light of this live example:
The first of these dynamics is that without competitors to help make noise and educate the market, the weight of that work sits with one company alone. Tesla isn’t entirely without competitors—Ford and even GM themselves are already selling EVs, and Nissan actually beats Tesla’s sales with its Leaf EV. For these other companies, however, EVs have to date been more of a PR exercise than a real business, representing a tiny fraction of their overall sales. Perhaps more important, EVs represent possibly an even smaller fraction of these companies’ public focus. It’s good for their brand to say they sell EVs, but let’s not get distracted from the real business of burning hydrocarbons!
Despite the entrance of these other companies into the EV market, Tesla is left as the only EV manufacture really pushing the market forward—and that is tough going for a startup in such a large market. Now GM has joined the growing list of mainstream manufacturers who have decided that the EV market matters (BMW even bought a SuperBowl ad for their new i3 electric vehicle this year). That kind of focus and spend has to help drive primary demand for upscale EVs in households that have never even thought of buying such a vehicle previously. The mainstream manufacturers will certainly gain from that spend, but history suggests that as the market leader, Tesla is well placed to gain just as much, if not more, without spending a single extra penny.
Another dynamic comes into play here that is unique to the EV market—charging infrastructure. Without easy fueling options, cars are just big, expensive street furniture. So-called “range anxiety” never occurs to drivers of gasoline-powered vehicles, despite having ranges less than most Teslas. After all, there’s a gas station wherever you need one (well, aside from near airports, but that’s another issue). The ability to charge EVs at home helps alleviate this problem somewhat, but ultimately we will need far more plentiful fueling infrastructure for EVs to hit the mainstream. Right now, Tesla is the primary company building fast-charging infrastructure, which is a huge burden on a company that is already pioneering in one market. The real entry of GM into the market should have the impact of encouraging a significant increase in EV fueling infrastructure, which will be a huge boost to all players in the market.
So what is keeping Elon Musk awake at night? I haven’t asked him, but my guess would be that the sudden, unnatural drop in oil prices is playing on his mind more than GM. Who knows what is truly behind the drop —perhaps it really is that Saudi Aramco (at the behest of the new Saudi king) wants to put pressure on Russia and Iran to come into line with regard to key Middle East issues. However, there can be no doubt that EVs are an existential threat to the livelihood of countries with economies built on oil revenues, and that equally, high gas prices have been a major contributor to the rise in sales of EVs. If the short-term price drop turns into a longer-term trend, that could have a far more serious impact on Tesla’s growth prospects than the market entry of any number of big competitors, and I think you would be forgiven for believing it is entirely intentional. I’m a great supporter of electric vehicles, so I find myself in the unusual position of wishing for higher gas prices, or at least wondering why gas prices mysteriously dropped by 50 percent at precisely the moment that EV sales in the United States started to take off. And I’m also cheering on GM as well as Tesla—no one ever said that being a pioneer was easy…or simple!
