Can Tesla Help Sell Other EVs?
Alexander is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It seems like a rather bizarre idea that one company’s product would increase sales of its rivals while being a well-received product itself. But thing is that Tesla Motors (NASDAQ: TSLA) could be increasing sales of other electric vehicles simply by releasing its own Roadster and Model S. Unfortunately, we have no concrete evidence of how Tesla’s vehicles have affected other EV sales since no official polls have been conducted to ask EV buyers the question. However, following the effect Tesla has had on the perception of EVs, it is logical to assume that Tesla has been at least a small part of the movement toward electric vehicles.
It’s not a golf cart
There was once a time that the electric car was seen as the equivalent of a street legal golf cart. With this view common among consumers, it would be difficult to convince buyers to trade their hard-earned dollars for an electric car.
Tesla realized this public relations problem of the electric car and sought to remedy it as its first priority. The release of the Tesla Roadster saw a $100,000 carbon fiber sportscar enter the market. Accelerating from zero to sixty miles per hour in less than four seconds, Tesla blew the roof off the negative image of the electric car. Of course, Tesla did this for its own gain, not for its competitors. The automaker’s goal was to generate publicity and set the stage for the mass production Tesla Model S that would turn Tesla into a real car company.
But even though Tesla was building the Roadster for its long term plan, the car’s effects rubbed off on the EV sector as a whole. Even those who could never afford a Roadster, or even a Model S, began to see a more positive image of EVs. Without the discretionary income to afford a Tesla, these new EV fans had to find a cheaper electric option if they were going to purchase an EV.
Due to the high costs of launching cost effective production of mass market vehicles, Tesla has remained in the high end of the automotive market with plans to expand later. In the meantime, traditional automakers are developing EVs of their own for public image and beta testing purposes.
What began as a concept car, the Chevrolet Volt, produced by General Motors (NYSE: GM), has become one of the best know electric cars. While it is worth noting the Volt is actually a plug-in hybrid electric vehicle rather than a pure EV, its year-over-year increase in sales shows that electrics are gaining ground in the marketplace. It’s impossible to tell how many Volt sales are the result of Tesla’s shaking up of the electric car image, but the presence of high performance EVs may have been a contributing factor in the decision of potential buyers to give the Volt a chance by taking a test drive.
While the Volt was designed to be the average family’s car, signified by its range extending engine and larger overall size, Nissan (NASDAQOTH: NSANY.PK) has taken a different path towards developing its own electric offering. The Nissan Leaf features a larger battery, but no range extending engine making it a pure electric vehicle. But aiming the car at the mass market has resulted in a far smaller range and much lower performance abilities than any of Tesla’s vehicles. As a result, the Leaf does not try to build itself around the image of EV performance, rather it targets fuel savings and environmental benefits. With this marketing approach it is difficult to see how the Leaf would have benefited from Tesla’s performance rebranding of the EV, but the Leaf may have received additional attention as Tesla spread the word about EVs as a group.
How much did Tesla help?
Tesla’s current targets are not so much competition based but more technology and production based. The future of Tesla will depend largely on the reception of the Model S, the company’s sole offering at this time. However, traditional automakers have different goals in mind considering their much larger product line and production budgets.
For both GM and Nissan, their electric cars are great ways to beta test the technology for the future. Sales of the Toyota Prius were not particularly strong at the beginning, but after over a decade of refinement the classic hybrid ranks as California’s number one selling vehicle. GM and Nissan are still developing EV technology and hope that the continual development of it can result in cheaper, better selling EVs in the future.
Despite the future hopes for Volt and Leaf successors, near term profits for GM and Nissan are not going to be greatly affected by sales of electric vehicles. Yearly sales for each vehicle are well short of 100,000 units, a number that often defines a mass market car. With the millions of cars both automakers sell each year, the development of EVs serves to build public image in the near term with a return on their investment to potentially arrive in the long term.
In the near term, sales of gas vehicles will still drive GM and Nissan’s earnings. With a recovering economy, traditional automakers (which are able to increase production easier than smaller Tesla) could see improved sales as consumers move to replace cars that wore out during the recession. Investors still hesitant about re-entering the housing market may be interested in looking at major automakers to play the recovery.
More EV options
A few years ago, potential EV buyers would have to look for a car converted to electric, a surviving EV from the early 2000’s push for electrics, or buy one of the few $100,000 Tesla Roadsters. Today, EV buyers have a much larger selection that includes the Chevy Volt, the Nissan Leaf, the Ford Focus Electric, and the Tesla Model S among the options. While building the Roadster and Model S, Tesla put a high performance image on the EV that has rubbed off on the electric car category as a whole. As more Tesla’s hit the roads, sales of other EVs could increase as more car buyers begin to associate EVs with high performance. This should be a major benefit for Tesla, which relies nearly entirely on sales of EVs, but likely will not have as much of a near term benefit for traditional automakers. Investors in traditional automakers should focus less on the potential for their automaker’s EV offering and more on sales of the automaker’s conventionally powered models that drive the vast majority of earnings. But with a growing number of EV models, we should expect to continue seeing an increase in total EV offerings, both from Tesla and traditional automakers over the next several years.
Alexander MacLennan owns shares of Tesla Motors . The Motley Fool recommends General Motors and Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!