Petrol-powered vehicles are now so ubiquitous that it’s easy think that electric vehicles (EVs) are a thing of the future. In fact, at the turn of the 20th century in America, 38% of automobiles were powered by electricity, and only 22% by gasoline (the rest were steam-powered). Everyone knows which one managed to become the dominant design within the industry, but their respective positions will soon swap once again.
Until five years ago, the market for EVs (electric vehicles) was for a long time a niche. The sole counterbalance of higher financial and practical costs was their weaker environmental impact. Today, this picture is fading, as general belief moves towards electricity as a valid alternative to combustion powertrains.
The merits for making this change possible should in no small part go to Tesla, which has strived to clear such an image through astute product development: as obvious as it may seem, designing luxury electric cars with remarkable performance – creating brand recognition and associating electromobility to power and enthusiasm – is something that no manufacturer has ever dared to do.
The EV market’s future movement from the luxury segment to the compact one, with the aim of generating high sales deriving from the reputation gained, is once again a big novelty introduced by the Californian company: others tend to the opposite, as with the recent relaunch of Alfa Romeo in the premium vehicles segment. This strategy appears to be paying off: more than 400,000 Model 3 have been presold so far. And if all the customers who paid the initial $1000 deposit turn out to be able to pay the final $35,000, Tesla’s sales will double all the electric cars sold by GM, Toyota, Ford, BMW, or VW during the last 5 years.
But Tesla’s numbers are not just overwhelming among EVs alone.
During 2016, the Model S sold more units than its ICE competitors within the US luxury sedan segment. In just four years, the company has achieved market leadership, with market share of more than 30%: the demand trajectory of high-end costumers is increasingly shifting towards electric powertrains, a significant transition which should alert manufacturers of the rapid pace at which change is occurring.
However, all manufacturers beyond Tesla – with the exception of Daimler and BMW – have yet to take a serious commitment down the electric road. As a matter of fact, Porsche launched the Mission E, VW the Golf E and Chevrolet the Bolt/Volt, but they still are far from reaching Tesla’s level of offering. These manufacturers seem like a child that, seeing its older sibling working hard, feels compelled to show its parents (i.e. shareholders) that he is working harder than him – when in reality it knows it is really just pretending to, and all it wants is to distract its parents’ attention.
In this respect, Toyota has tried to stand out from the crowd, after it announced that it will not follow the electrification path, but focus on hydrogen power instead. This seems, from a purely energetic point of view a clear no-brainer, simply because pure hydrogen cannot be found on Earth and must be produced with electrolysis, meaning it will always be a more inefficient source of energy than electricity itself. The advantage of such technology is only quicker refilling, which, given the pace at which recharging times are dropping, will unlikely remain an asset in the near future.
Integrating Through the Roof
PayPal, SpaceX and other projects Musk has been involved in are indeed not only pioneering at the front of technological innovation but also often share the absence of direct competitors. Tesla, as it has been said, is no exception. This implies that if EVs manage to affirm themselves as the dominant design – which seems to be inevitable for a variety of factors – current major manufacturers could lack behind. Tesla’s early moves might pay off substantially, since being a monopolist in the electromotive sector coincides with retaining the leadership in the battery production business, which requires substantial economies of scale.
This is the very core of Tesla’s industrial plan: by increasing the number of sales with new models and complementary offering, all sharing the same technology, its incumbency in battery production may guarantee a future dominant position, which well justifies its recent rally in the stock market.
Sergio Marchionne, CEO of Fiat Chrysler, has admittedly warned the FT that the first risk in the transition to electric mobility is the outsourcing of the production process, or, as he calls it, ‘disintermediation’. “Having initially manufactured all their own components, carmakers currently retain primary control of making only vehicles’ powertrains, their engines and transmissions,” he said. “If we start losing any of that, we will not be able to hang on to any proprietary knowledge and control of that business. We won’t be manufacturing the batteries. We won’t be manufacturing the electric motors that are part of that powertrain.” This is a perfect fit for Tesla, is it not?