If you think electric and plug-in electric vehicles are just for nerds, spend a weekend in a BMW i8 PHEV. As an automotive journalist, I drive a lot of sexy cars, but I can’t remember one that attracted more attention.
The i8 isn’t just fast and gorgeous; it comes with all the perks of a fully electric vehicle, such as access to carpool lanes and special parking.
With Tesla challenging its reputation for engineering great cars, BMW clearly gave the $136,000 i8 its A-game, as well as the transformative $41,000 i3. Both cars represent huge development costs and are expected to lose money, but BMW doesn’t care. It has to sell EVs to meet current and future emissions rules and it needs the stock-pumping respect from Wall Street that technologically advanced vehicles deliver. So does Audi, Porsche, Mercedes-Benz and every other major automaker on the planet.
This spells trouble for Tesla. The electric carmaker had a great first quarter, with global sales up 55%, to 10,300 units. But it will have trouble becoming profitable when its only competitors are pet projects of major automakers that only care about image and volume and expect to lose money on them.
When Tesla introduced its much lauded Model S in 2012, it created something traditional automakers thought impossible: an electric luxury car that wealthy consumers aspire to own, enthusiast magazines rave about and Wall Street investors worship.
On top of that, it developed an innovative battery strategy that allows the Model S to boast a range of up to 270 miles (435 km), more than three times that of most other EVs. It also is challenging the long-established dealer franchise system with company owned stores.
The downside for Tesla is now that it has shown there is an aspirational market for EVs that can boost stock prices if not make money, the world’s biggest and best automakers are lining up to compete with the tiny automaker, which sold just 31,655 cars globally last year and 13,785 units in the U.S., according to WardsAuto estimates.
The i8 and i3 are part of a wave of stunning new plug-in products that promise to steal away market share and future buyers from Tesla while it struggles to introduce just three new products in the next several years: the Model X, a CUV sibling to the Model S that is two years late and now due later this year. A $30,000 sedan and CUV are expected in 2017 or 2018 if Tesla can meet its production deadlines.
Meanwhile, an impressive array of competitive BEV and PHEV models are entering the market during the same period at a variety of price points. On the high end are vehicles like the Audi R8 e-tron sports car that promises a range of 280 miles (450 km), an Audi CUV promising a range of 311 miles (500 km) aimed at the Model X and a BEV Porsche targeting the Model S.
In the middle are cars like the unique i3, which already is a hit in California, plus numerous affordable BEVs impinging on Tesla’s upcoming mainstream Gen III models, including the Chevrolet Bolt which promises a range of 200 miles (322 km) and a redesigned Nissan Leaf that is the sales leader in the BEV segment, along with dozens of other new and improved PHEVs and BEVs such as the Chevy Volt and Fiat 500e. A total of 13 pure BEVs were offered in the U.S. last year, accounting for a total of 65,347 deliveries and 53 HEVs and PHEVs were sold, accounting for 507,272 units, according to WardsAuto data. Non-traditional competitors such as Google and Apple also are eyeing the EV market.
Tesla’s bid to become a dominant vehicle battery supplier is being challenged by Chinese EV automaker and battery giant BYD, which is tripling production capacity to equal Tesla’s Gigafactory by 2020.
Volkswagen, which sold more than 10 million vehicles globally last year and owns Audi, Porsche, Bentley, Lamborghini and Bugatti, is investing heavily in a battery strategy it says will equal or better Tesla’s.
There also are new-technology startups such as Sakti3, which is developing promising solid-state technology batteries with backing from General Motors and others.
Meanwhile Toyota, the world’s largest automaker and Korean giant Hyundai are placing long-term bets on hydrogen fuel cells, PHEVs and HEVs rather than pure EVs. Hyundai introduced a fuel-cell powered CUV last year and Toyota will introduce an FCV this year.
Hydrogen-powered vehicles can refuel in minutes and provide ranges up to 300 (483 km) miles with zero emissions. A study of greenhouse gas-emissions by the Advanced Power and Energy Program at the University of California at Irvine shows fuel-cell vehicles running on hydrogen derived from natural gas ultimately create far less GHG emissions than BEVs running off the U.S. grid, which is powered mostly by coal and natural gas.
GHG emissions created by fuel sources are expected to be factored into California emissions standards post 2025.
The other threat competitors pose to Tesla is massive dealership networks that are conveniently located, do warranty work and repair fender-benders in all 50 states. Purchasers of the Model S, which has an average transaction price north of $100,000, don’t care their Tesla store won’t take trade-ins, do warranty work or supply loaners when extensive repairs are required, but people who stretch to pay $30,000 to $40,000 for a vehicle certainly do. Tesla is not even allowed to sell vehicles in five U.S. states.
Success in China is crucial to Tesla’s goal of selling 500,000 vehicles globally by 2020, but like every other automaker selling EVs in China, Tesla is struggling despite big government incentives for EVs.
Tesla’s extraordinary stock price, which has created a valuation as high as half General Motors, is based on investors believing the automaker will be a major disruptive force in transportation.
But lately CEO Elon Musk has been trying to boost sales with nothing but old-school strategies such as offering all-wheel-drive, more horsepower and making inflated claims about autonomous driving capabilities and using an app to try to eliminate range anxiety on the one car he offers. With all the competitive threats looming on the horizon, he needs to do better than that.