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What Would You Say If A Car Got 1.2 Million Reservations -- In The U.S. Alone?


Hyundai got 20,000 reservations for the Kona EV in Norway, before it stopped taking more.

Seeing as the U.S. has a population that’s 60x larger, that would extrapolate to 1.2 million units in the U.S.

But of course, that’s not remotely realistic for one single reason: Norway has insanely large government subsidies for plug-in electric cars.

Plug-in cars are approximately half of the Norwegian market.  In some cases, subsidies per car can exceed $100,000, but the average is probably quite a bit lower.

However, what this points to, is that Tesla’s competition is heating up dramatically, and that it will suffer both in terms of market share and gross margins.

Well, I’m not talking about the U.S., of course, so I am extrapolating -- from Norway. And the car I’m talking about is the Hyundai Kona EV -- Hyundai’s second all-electric car.

Hyundai got 20,000 reservations for the Kona EV in Norway, after which they chose to cut off the list, because the number had become greater than they can supply in any reasonable time period: Hyundai Kona EV gets Norwegian price/specs as company plans to make own batteries

So what about 1.2 million equivalent units for the U.S.? It’s elementary: The U.S. has a population that is approximately 60 times larger than Norway. So, 60 x 20,000 = 1.2 million it is. That would be the U.S. equivalent number.

But of course, the U.S. is not Norway, especially as far as plug-in electric cars of all types are concerned. Norway provides for a huge subsidy to buyers of electric cars. The way it works is that regular gasoline and diesel cars are taxed very heavily, especially when you buy the car to begin with. Of course, gasoline and diesel taxes are also astronomical in Norway.

Electric cars are essentially exempt from this Norwegian taxation. This means that depending on the comparison, you could save well over $100,000 on buying an electric car, seeing as that’s the tax you would otherwise have to pay.

That’s a huge incentive. If you could save many tens of thousands of dollars or even more -- say $80,000 -- on the price of a new car, you too might get an electric car.

Therefore, depending on the month, electric car sales in Norway tend to be around 50% of the market. Frankly, with those kinds of subsidies, I’m surprised that it’s not a lot more than in the 50% territory. Why not 80% or 90%?

In comparison, Tesla (NASDAQ:TSLA) claims as of last August 2, 2017, that it had 455,000 deposits for the Model 3 on a global basis. A typical deposit for this car is $1,000, and it’s fully refundable until you actually order the car.

For all we know, Tesla has more than 20,000 deposits out of those 455,000 for the Model 3 from Norway specifically. Tesla does not break out these deposits, so we just don’t know.

What all of this goes to show is: When the government offers huge subsidies to buy an electric car, more people buy them.

Hyundai won’t take away all customers from the Tesla Model 3. Some people will buy the Hyundai Kona EV instead of Tesla Model 3. Yet other people will do so, but with a lag. Basically, they will postpone their purchase until Hyundai is able to deliver more cars, which may take a year or even more. And some, of course, will simply take delivery of the Tesla Model 3 when those deliveries begin some time in 2019.

Hyundai Kona EV is not the only car that is racking up a reservations list in Norway. Other cars include:

  • Jaguar i-Pace

  • Audi eTron

Soon, we can also assume that the Kia Niro EV and 230 mile range version of the Nissan LEAF will enter this equation. In 2019, we will also see the Mercedes EQC and the first Volvo taking on this market.

Therefore, while there is no doubt that the Tesla Model 3 will be a popular market entry, just like it is in the U.S. right now, the competition is heating up dramatically in the coming months. That will put pressure on Tesla’s market share, as well as gross margins. The Hyundai Kona EV in Norway will provide a very instructive example in this regard.

Disclosure: I am/we are short TSLA.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long GM and GOOGL. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.