Today, I am not going to talk negatively about Tesla (NASDAQ:TSLA). Instead, I am going to entertain a thought related to my previous article, What Does Tesla Have In Common With Commodore International?"
In that article, I explained why a company being an early leader in a high-growth market is no guarantee that such a company will be the ultimate winner. To have such certainty, the company would need either for there to be substantial barriers to entry into the market, or for it to have sustainable advantages over its new competitors.
The thought here is, might Tesla have at least one advantage that its potential competitors don't have? It will be rather subjective as we will see, but there's at least one chance for Tesla to have such an advantage.
High-end cars - the very market where competition will start hunting Tesla down - are often seen as status symbols. They are different from lower-end models (instead of just being souped-up versions of lower-end models that are not seen as high end). They have high performance, and are also generally larger in size. They're made to stand out, to be seen, to say "I have arrived". As I said, they're status symbols.
The high performance mostly goes unused, but you'll be hard pressed to find a high-end auto without it. It wouldn't be becoming of a status symbol to be known as being sluggish as a snail.
So high performance must be present on the high end. And if your competitor launches something with 500bhp, you're bound to add a few to your latest offering as well. In this regard, Tesla raised the bar with the Model S P85D, by having it carry the performance of something having, say, 800bhp in a saloon car. Since producing high-end ICE (Internal combustion engine) models with 800bhp and selling them at $100k would both mess up the ICE lineup and become somewhat uneconomic, such reality will force most high-end companies to compete directly with Tesla using similar tradeoffs - that is, with a similarly large battery, considerable range and high performance.
But being a status symbol is also being different. And in that regard, EVs are intrinsically different from ICEs. So, for someone buying an EV as a status symbol, it might be important that others will recognize his or her car as being an expensive EV.
Tesla's Possible Advantage
Therein lies Tesla's possible advantage. Tesla does only EVs, and people know Tesla does only EVs. So when you show up with your Tesla status symbol (with added environmental ramifications), people instantly know it's an EV (either that or they don't know anything about cars).
The same can't be said if you show up in an Audi, BMW, Mercedes, etc. There will be EVs from those brands, but there will also be ICEs from those brands. If you show up in your BMW EV, you will run the risk of it not differentiating from other BMWs running on gas. And the risk of it being less of a status symbol because of that.
This is perhaps Tesla's only hope for an advantage, because technically there won't be anything Tesla does that others can't readily replicate. And there are several things established car makers do - after many years of experience - that Tesla might have difficulty achieving (things like quality, interior design, production efficiency).
A Possible Response From Other Automakers
The realization that their products might not readily be seen as EVs might already have hit the management of those entering the market with early versions.
This might explain the radical departure in design brands like BMW and Nissan (OTCPK:NSANY) have taken for their own EV offerings. This is a trend requiring monitoring in future products, to see whether high-end brands will use radical designs or stick to designs similar to those existing for the EV versions.
On the other hand, since a pure EV might require an inherently different structure (with floor batteries, no engine in the front, etc.), we might always see EVs as being different models altogether, even if not necessarily radical in design.
A further response could come from launching independent brands, like Toyota (NYSE:TM) did with Lexus for the high-end market. But this then runs the risk of wasting the brand equity BMW, Mercedes, Audi, Lexus and others have built over the years. It's a difficult choice.
Anyway, the fact remains - a Tesla will be seen as an expensive EV without any difficulty, thus earning his owner's required status points. Other makers might have trouble replicating this experience easily, and that's what constitutes the kind of advantage that can help a brand during fierce competition.
Yet, nothing is going to save Tesla if it keeps on having massive quality issues like the recent news from Norway, where the company must replace hundreds of drive units even at very early mileages.
If Tesla does have any kind of sustainable advantage, such advantage might be in it sticking to just making pure EVs and being recognized as such. This might help its cars better represent the status symbols most high end buyers require from their vehicles.
Other brands will have difficulty matching this particularly subjective advantage because they also build ICEs and most of the public might have trouble differentiating which is which, thus losing the EV status symbol.
New entrants might employ strategies to fight this phenomenon if it proves relevant, from radical design (thus differentiating from the rest of the car range) to newly-established brands just for the purpose of selling EVs. But right now, we cannot say how important this angle will be, and we'll just have to wait three years or so to see what happens when direct competition hits the market.
This article does not mean I'm positive on Tesla's prospects. I find Tesla extremely overvalued and discounting a certainty regarding the future, which we can't really have in the present. But still, when going over a company's prospects, it usually pays to try and see both sides of the coin - both the potential positives and potential negatives.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.