In case you missed it, BMW unveiled on Monday (July 29th) their plans for the all electric BMW i3. This represents the first fully electric car launched by BMW, a company widely perceived to be a "luxury" car maker. The i3 is widely being touted as a rival to the Model S, and if it were, it would be a big threat to Tesla's share price.
A point often cited by Tesla (NASDAQ:TSLA) bulls is the superiority of Tesla technology: no other car makers will be able to rival the Model S anytime soon, they say. Because of this, Tesla will dominate their industry and deserve a sky-high PE ratio (currently going for 130x estimated 2014 earnings). I've even written about why Tesla could go higher myself.
On the other end, a point often cited by Tesla bears is that it's only a matter of time before other, more well-established automakers enter the market and start to erode Tesla's lead. Within two or three years, competition will strain Tesla's margins and their growth will slow or stop, so the story goes.
And bears are certainly right about one thing at least -- more electric vehicles will surely be on their way. BMW chief Norbert Reithofer said that he believes emission regulations in Europe, the US, and other countries will make it virtually a necessity to have an electric car like the i3. With the BMW i3 being recently unveiled, investors now have a golden opportunity to look at what the future might hold in terms of competition for the Model S.
The BMW i3
Model S 60kWh
Model S 80kWh Perf.
Max Torque (N*m)
Seats up to
*Actually, 7.2 seconds is the time to 100 km/h, which is about 62mph.
The biggest thing the BMW i3 has got going for it over the Model S is the price. But you lose an enormous amount of everything else: speed, size, range, torque. And of course, BMW does not have a supercharger network; rather, their strategy to reduce range anxiety is allowing buyers to come in and exchange their i3 for a regular gas-powered car when they really need more range. That hardly seems as convenient as Tesla's Supercharger stations which give free charging for life. (See here to read my previous article on why the Supercharger network will be a great investment.) Or, you could get a small gas-motor with your i3 which would effectively double the range, but then it's not really an all electric car anymore.
So, comparing these two cars is like comparing apples and oranges. Contrary to the headlines you will read about the BMW i3, I don't see the i3 as being a direct competitor to the Model S. Maybe the i3 is a competitor to the Nissan Leaf and Chevy Volt, but the i3 and Model S are very different cars. For whatever reason, BMW decided not to come in close to the Model S price point. Perhaps they did not feel comfortable that they could deliver a car that would match up to the Model S, or perhaps they decided not to try. I don't know for sure, but looking at the rumors for the BMW i8 may cast some light on the question.
The BMW i8
The BMW i8 is an electric sports car a bit more on par with the performance of the Model S. While they haven't confirmed all the details of its specs yet, we can still get a good idea for where it will be positioned in the market when it is released.
The comparison based on every number I can find is completely laughable. The i8 is rumored to cost a whopping 150,000 £, nearly $230,000. Need I say more? Ok, it's still not completely electric (1.5L gas engine), will have less torque (550N*m including the gas engine), less seating (four or five, not seven), and be slower 0-60mph (4.6sec) than the Model S performance.
For $230,000. And it isn't even out yet! The decision between a Model S and a i8 would be a no-brainer with those specs. BMW hasn't said much about the i8, we'll know more after they release the specs later this year (hopefully). But as of right now, they are way, way, way off. I expect the specs BMW announces will improve quite significantly from what's been rumored (because who would buy it if they didn't?), but I don't know if they will be able to bring the price down, increase the performance, remove the gas engine, make it bigger, and still release it in a timely fashion.
In other words, while the BMW i8 probably won't be as bad as the rumors make it sound, it definitely does NOT scare me as a Tesla shareholder.
We have still yet to see or a car that actually, genuinely competes with a Model S. The best evidence of Tesla's competitive advantage, it seems to me, comes from just looking at the electric vehicle market. Tesla is the only company that has made an electric car worthy of a $100,000 price point, and no other companies seem eager to compete with them at that price point. When Tesla releases the Model X and Gen III at lower price points, that is when I think the EV market share battle will really begin.
I'm sure other car makers will catch up eventually -- but I think it may be a very long time. It certainly doesn't seem like Tesla is being squashed like a bug.
I fully expect the stock to remain quite volatile for a while, and I expect that there may be some big ups and downs over the next 12 months. Nonetheless, until I see a verifiable challenger to the EV throne, I am compelled to believe that Tesla has a very good shot at dominating the EV market for years to come. If that's the case, I fully expect the market cap to increase dramatically from the current $15B, which will be very lucrative for shareholders.
Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.