There are two very different approaches when it comes to electric cars that yield different kinds of cars, address different target markets and use different kinds of batteries. The first approach is to build the best vehicle possible using electric power, aiming to compete with the best ICE cars, using commodity batteries. The second approach is to build the least expensive electric vehicle possible, aiming to compete with lower-end ICE cars on cost, with newly developed specialty batteries. Tesla (TSLA) has taken the first approach while GM (GM), Ford (F), Nissan (NSANY.OB) and others have chosen the second approach. Tesla is on the right path for success in the electric car business and their competitors are headed for failure. Let me tell you why.
Early learning curve electric cars can't compete against mature ICE cars where total cost of ownership is the main consideration. While batteries and electric motors are old technology, the Li-Ion batteries, electronic drive inverters and computer control systems of modern electric cars are new. This means two things. Modern electric car technology is not as good as it is going to be. And, this technology is not cheap, yet. Cars like the Volt and the Leaf that come with sticker prices double that of comparable ICE cars illustrate the point. And, it gets worse.
Low performance electric cars, especially those with limited range (small batteries) fail to exploit inherent advantages of electric drive. Electric drive batteries, power inverters and motors all work more efficiently at part load than they do when delivering maximum output. This is the opposite of an ICE. A relatively underpowered ICE car - where the engine is working hard most of the time - is inherently more efficient than a high performance ICE car where the engine is inefficiently loafing most of the time. In the case of low performance cars, the ICE versions get to operate near their best efficiency while the electric versions end up operating at their least efficient point. For high performance cars, the reverse is true. It follows that the electric car designer has the advantage when designing a high performance car, but when designing a low performance car, not so much. Tesla's Model S is acclaimed as a quicker, quieter, smoother riding, better handling BMW. Has any reviewer claimed the Volt is a knock-your-socks-off better Chevy Cruze?
Battery technology developed specifically for electric car applications is not the key to lower cost. The existing battery industry is already being driven to higher capacity, longer cycle life, shorter recharge times and wider operating temperatures - all the things an electric car battery needs to be - by makers of laptop computers, cell-phones and other electronic devices. Development of a 'new' battery, even if the chemistry is the same and only the form-factor differs, presents an economic and manufacturing learning curve challenge. Commodity batteries manufactured by the billions, from experienced suppliers driven by intense competition offer lower cost, greater reliability, better performance and assured availability compared to any custom developed battery. Until the electric car market begins using large volumes of batteries, the custom electric car battery is a dog that just isn't going to hunt.
Here is a table that summarizes the differences between Tesla and other electric car makers.
|Strategy||GM, Ford, others||Tesla|
|Car||Economy||Performance||Greater electric vs. ICE advantage.|
|Market||TCO driven.||Performance, status driven.||Tolerates premium.|
|Battery||Custom||Commodity||Cost, availability, performance, reliability.|
Tesla is doing three things differently from it's competitors that give Tesla competitive advantage. Tesla has chosen to make a high performance rather than a low performance car and this allows them to offer an electric car that is better than comparable ICE vehicles. Other electric car makers that make low performance cars have been unable to deliver similarly outstanding cars because the low performance design space offers the electric car designer less advantage over the ICE car designer.
Tesla has chosen to compete against high performance, high status, premium ICE cars - a market space tolerant of premium pricing - so higher costs of early-on-the-learning-curve technology can be passed to the buyer. Tesla's competitors compete in an economy car market space driven by TCO considerations and higher, early stage costs of electric drive reduces their electric car manufacturing to philanthropy.
And finally, Tesla has chosen to use commodity battery cells rather than designed-for-purpose electric car batteries. This gives Tesla the technology, reliability, performance, availability and competitive pricing achieved in a competitive marketplace that delivers billions of batteries every year. Tesla's competitors mean while have opted for specialized 'electric car' batteries that are built in relatively small volumes, to relatively static performance specifications by, in some cases, companies that are on the edge of bankruptcy.
So, it's Tesla: right car, right market, right battery. Competitors: wrong car, wrong market, wrong battery. And, this is why Tesla is going to win - if only they can keep the shiny side up and the dirty side down until they cross the finish line...
Disclosure: I am long TSLA.