One of the first indications is just how well Volkswagen is already doing with its new ID.3 compact car in Europe. It was the best-selling EV in Europe in October. The Tesla Model 3 is still way ahead as the best-selling EV globally and has now sold more units than the Nissan Leaf, despite the latter just reaching its tenth anniversary where the Model 3 isn’t even four yet. But in Europe in November 2020 the Renault Zoe came top, with the ID.3 second and the Hyundai Kona Electric third. The Tesla Model 3 was fourth, and the Model S and X weren’t even in the top 20, whereas the technically inferior Audi e-tron was. This is causing some concern with European investors.
Part of the problem is that Tesla is still targeting a relatively premium end of the EV market, with its cheapest vehicles in the USA still around the $40k mark, and more expensive in Europe. To hit much higher volumes, it sorely needs a smaller, cheaper car for greater mass market appeal. The Model Y is in the crossover / SUV format, which is more popular than “mid-sized sedans” like the Model 3. But it’s no cheaper and still won’t compete in the same segment as the Renault Zoe, VW ID.3 or Hyundai Kona.
Tesla is rumored to be gearing up to build a new car in China already, which some have mooted could be the much-anticipated $25,000 Model 2. But where a $25,000 car sounds like decent value in the West, there are already plenty of cars on sale in China for less than this, and not just tiny urban-only vehicles like the infamous Wuling Hong Guang Mini EV. The BYD e2 is close to $20,000 before any subsidies, yet still offers a very respectable 190 miles of NEDC range.
Last week, I highlighted some of the Chinese cars that we are likely to be seeing come out of China into the US and European markets in 2021 – a couple of which have arrived already like the Polestar 2 and MG5 EV. These will not only be competitively priced but extremely well specified as well. There’s a good reason for Chinese EVs to be looked upon as the biggest competitor in the market, too. The huge range of increasingly capable EV models is there to fulfil a local need. A big explosion in the size of the Chinese EV market is expected in 2021, which will become larger than the rest of the world put together by unit volume, if not value.
Whatever the value of Tesla as a company, it could have had its day in the sun already as biggest EV gorilla in the room. Green and high technology hedge fund Snow Bull Capital has made some very telling predictions about the future of EV sales. In 2020, Tesla just fell short of selling its target of half a million cars, which is incredible considering the youth of the company. Snow Bull expects its sales to peak at just under 7 million cars by 2031. But then it will decline, and more tellingly, the estimate is that Tesla’s market share of EVs has already peaked in 2020 at around 23% and will reduce to 8% by 2040, as other vendors pick up volume.
I already argued a month ago that 2020 was the year EVs came of age, and lots of big players are taking notice. Apple
One of the many areas where Tesla currently has a very clear lead over the competition is battery technology and the efficiency it can extract from its power packs. As an example, the Tesla Model 3 Standard Range Plus manages 267 miles out of a 54kWh battery, whereas the VW ID.3 requires 58kWh to go 263 miles – and the ID.3 is over 100kg lighter, too. At Tesla’s Battery Day last year, the company announced a host of technological developments, but in particular a new cell type called 4680, which will see limited initial delivery in the Tesla Model S Plaid this year.
Although batteries are becoming inexorably cheaper, the 4680 will accelerate that greatly once it enters mass production. The battery cost of $100 per kWh has long been considered the magical point where EVs start being cheaper than internal combustion engines. Tesla’s current Panasonic 2170 cell technology isn’t expected to hit that point until 2022/23, and being new tech, the 4680 will take a bit longer. By 2024 it will significantly undercut the 2170 per kWh.
But there are some alternatives that are already below the $100 per kWh level – and tellingly, a number are Chinese. The Lithium Iron Phosphate (LFP) battery type available from CATL is below that mark now, and Tesla is reportedly using it in Chinese-built Model 3s. BYD’s Blade packs LFP battery technology in a more space-efficient way, and looks like it will be the most cost-effective option for some years to come. It’s already 15% cheaper per kWh than anything else on the market, and about 25% cheaper than the Panasonic 2170. LG Chem’s NCM batteries are also a 2170-type but are starting to have a price advantage over Panasonic’s version.
Of course, Tesla can, and does, set up supply deals with many of these battery vendors to ensure its cars remain cost effective. But the 4680 cells won’t necessarily be the huge technological lead some have expected. While they are an amazing development, they are not alone at least in terms of cost per kWh. We are already seeing cars from other vendors vying with Tesla’s once-unassailable maximum range records, and this lead is going to be eroded very quickly over the next few years.
Tesla also continues to be dogged by quality control issues, something I flagged back in June but has long been the most serious skeleton in the company’s closet. If you frequent Tesla owner groups on social media, you will see this subject come up time and again. It is perhaps the single biggest disincentive from buying Tesla cars. The dreaded MCU issue, where the firmware is updated so many times that the memory chip fails on cars built before April 2018, has now resulted in a massive recall of 158,000 cars.
This is not to say that Tesla won’t remain the leading player in the market for bleeding-edge technology. As the Snow Bull Capital estimates show, it is likely to be producing 14x as many cars in a decade from now. Tesla hasn’t even unleashed production capacity in Europe yet because the Berlin Gigafactory is still under construction, due to open this year. There have even been reports that UK town Swindon is trying to lure Tesla into opening a factory in the premises soon to be vacated by Honda, where its Civic model was primarily made and which it is leaving in July 2021, ironically in order to refocus on making electric vehicles.
But the days when Tesla was the clear leader and every other brand an also-ran are drawing to a close. And that’s not a bad thing, because no monopoly is positive for the consumer. Having lots of contenders, both new like NIO and incumbent like VW, will ensure that EVs just keep getting better and better.