Where's Tesla's Model S Competition?

 |  About: Tesla Motors (TSLA), Includes: TM
by: Juan Carlos Zuleta


Recently, I suggested that Tesla’s Model S may have become a threat for Toyota’s Lexus hybrids and referred to the luxury large cars as a source of competition for it.

In this article I extend these views to further enquire as to where the real competition for the Model S might be.

I conclude that the Model S is disrupting/killing most luxury hybrids while causing serious damage to the super luxury ICE cars which may be forcing some OEMs to go all-electric.

In a previous article I tried to answer this question by looking at a portion of the luxury hybrid electric vehicle segment in the U.S. concluding that there were some reasons to believe that Tesla's Model S had become a threat for Toyota's (NYSE:TM) luxury hybrids (Lexus). In a subsequent piece, this time located in Germany, I referred to another possible source of competition for the Model S, namely the luxury large cars, finding some plausibility for Tesla plans to sell 10,000 Model S cars by 2015 in that country.

Here I extend these contributions by comparing Tesla's Model S with both an expanded group of luxury hybrid models and the best 10 super luxury cars in the U.S. automotive market.

As shown in Figure 1, since the Model S was launched, it outperformed the rest of luxury hybrids in the U.S. in only 9 (out of 20) months. Note also that only 4 (out of 17) luxury hybrids (i.e. the Lexus ES, the Lexus CT200h, the Lexus RX 400/450h and the Lincoln MKZ) were able to confront at least on one occasion the Model S as follows: The Lexus ES beat the Model S 9 times, whereas the Lexus CT200h surpassed it 8 times, the Lincoln MKZ hit it 4 times and the Lexus RX 400/450h defeated it only once. The importance of the two first models is ratified when a comparison is made in terms of total sales during the 20-month period (See: Table 1).

Figure 1

(click to enlarge)Click to enlarge Source: hybridcars.com.

Does this mean the two hybrid models that outperformed Tesla's Model S constitute its main competitors? Not so, because of two reasons.

First, we can observe that the Model S was greatly challenged by the four models between August and December 2012 but less so between January 2013 and March 2014. Coincidentally, beginning in January 2013 the Model S started to sell consistently more than 1,000 cars (i.e. mass-production scale), a trend that would remain invariable for the rest of the time period under consideration. This made me think that perhaps it would be more appropriate to make a comparison during this last time period. This is done in Figure 2, where now the Model S appears to have been outperformed by at least one of those four models in only 5 (out of 15) months; in addition, the two Lexus models that were challenging the Model S in terms of total sales in Table 1 now seem to have been put to rest (See: Table 2).

Table 1

Tesla Model S Versus Luxury Hybrids

(August 2012 - March 2014)

(Total Sales)

Source: hybridcars.com.

Second, in the last column of Table 2 we see that the prices of those two models are well below that of the Model S. This precludes all possibilities that these models constitute any real competition for it. The data also serve to confirm that the 6 models (in red) in the price range of the Model S are not a true threat to it either.

Figure 2

Source: hybridcars.com

Moreover, by looking deep into another set of information, it's further confirmed that at least two OEMs (Toyota and Porsche) have begun to react, albeit not unequivocally, to this competitive pressure on the part of Tesla. For one thing, it's quite symptomatic that Toyota would have launched its Lexus ES success model just one month after the Model S started to be commercialized in the U.S. automotive market. For another, it's somewhat curious that Porsche decided first to discontinue its Panamera conventional hybrid in November 2013, following lousy sales, second, introduce its Panamera plug-in-hybrid instead in January 2014 to achieve thus far only moderate results, and third, would be considering to go now for a full-electric car.

Table 2

Tesla Model S Versus Luxury Hybrids

(January 2013 - March 2014)

Prices and Sales

Sources: Hybridcars.com; USnews.rankingsandreviews.com; Thecarconnection.com; Motortrend.com; and car makers' official web sites.

Ultimately, all of this seems to corroborate that Tesla's Model S is indeed disrupting (killing?) most luxury hybrids. But it too leaves us as yet with no answer to the question as to where indeed Tesla's Model S real competition is.

That's why we need to turn our attention towards a recent ranking suggested by the USNews.rankingsandreviews.com, which classifies the Model S as the best super luxury car in the U.S. automotive market, followed by another 10 internal combustion engine (ICE) cars included in Table 3. As can be observed there, except for only two models (the 2013 Hyundai Equus and the 2014 Cadillac ELR which, incidentally, are ranked in the end of the table), the Model S appears with the lowest price. Last, but not least, Tesla's revolutionary model shows the largest quantity of super luxury cars sold in 2013. This finding validates a previous presumption of mine that consumers do value its features and styling seeing it as "a great buy for a relatively low price."

In this context, we are now in a position to answer the question posed in the title by saying that some real competitors for the Model S can in fact be found nowadays in the super luxury ICE car segment of the U.S. automotive market, but they're being awfully beaten up by it. Perhaps this explains why these OEMs are beginning to move towards all-electric options. Time will tell whether as "an increased number and higher diversity of firms move into [this] new trajectory leading to more technological competition, the new technology is more likely to be continuously developed, improving its chances of commercial success" (see: Wesseling, Faber, and Hekkert, 2014).

Table 3

Tesla's Model S Versus Super Luxury ICE Cars


(click to enlarge)Click to enlarge

Sources: usnews.rankingsandreviews.com; and goodcarbadcar.net.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.