Is market share the right metric to evaluate electric cars and Tesla's future?

“Americans aren’t buying electric vehicles, they’re buying Teslas,” reads a recent CNBC headline, and it’s a fair assessment. In the US, Tesla’s share of the EV market looks like Bob Marley’s share of the Reggae market. According to auto industry analyst IHS Markit, 79% of the EVs sold in the US in 2020 were Teslas.

Above: Tesla Model S (Flickr: Bill Abbott)

Tesla enjoys a strong share of the EV market everywhere, but its lead is much larger stateside than it is in China and Europe, where stringent emissions regulations have forced domestic automakers to turn up the voltage quickly. In the absence of meaningful government incentives, US automakers have treated EVs as an R&D project, and this has allowed Tesla to dominate the still-small market. (Industry-watchers expect EVs to represent a little less than 4% of the total US auto market in 2021.)

“It’s no surprise that Tesla’s still dominating electric vehicle sales, because they’re the only ones that really have viable products in full swing,” IHS Markit Associate Director Michael Fiske told CNBC.

This is about to change. US automakers are ramping up their EV efforts, and they’re starting to target the types of vehicles that Americans buy. Ford’s F-150 Lightning is already in pre-production. It’s almost certainly going to beat Tesla’s Cybertruck to market, and there’s every reason to believe that it could be a strong seller, if Ford chooses to push it. Chevy’s electric Silverado may join it on the streets in a year or so. Scrappy startups are also challenging the young king—Rivian and Lucid are already delivering vehicles. And the Chinese are coming—Xpeng and NIO are already shipping product to Europe, and the Chinese/Swedish Polestar is delivering vehicles in the US.

Pretty much all the pundits predict that Tesla will soon be toppled from its electric throne. “In a growth market, it’s extremely challenging to maintain majority market share,” says Michael Fiske. “As we start to move toward a larger and really significant number of manufacturers that are going to be playing in the space, Tesla has to lose share.”

IHS Markit expects Tesla’s market share of pure EVs this year to drop to 56% in 2021, and to 20% by 2025. LMC Automotive, another auto industry forecasting firm, expects GM to supplant Tesla as the largest EV seller in the US market by that date (so does GM CEO Mary Barra).

Above: Some thoughts from Wall Street analysts and investors surrounding market share, electric cars, and Tesla (YouTube: CNBC Television)

There’s a lot of talk of pies, and the division thereof, but a pie is not really a good metaphor in this case, because once a pie is baked, it doesn’t get bigger, and once it’s eaten, it’s gone. A better metaphor for the auto market might be a litter of kittens. Say a particular litter has three orange kits and one white. In the absence of veterinary intervention, there will soon be another litter, and another. As cats proliferate, the market share of the orange ones may shrink, but their total number will increase. (According to the Animal League, one unspayed female cat can produce as many as 8 million feline descendants in 8 years.)

Of course, automobiles don’t reproduce like cats, thank goodness, but the point is that the overall EV market is growing quickly, so a loss of market share won’t necessarily translate to a decline in overall sales. Another way of looking at is that there’s no such thing as an “EV market.” There is an auto market, of which EVs represent a growing share.

Non-Tesla automakers are going to take a growing share of that growing share, and that’s good news for all air-breathing creatures. As Elon Musk has said many, many times, Tesla wants everyone to drive an EV, regardless of whether it’s a Tesla. In fact, when the Fab Five founded Tesla, they didn’t envision it as a large-volume automaker, but rather as a sort of gadfly that would inspire the big firms to go electric. Now this is happening, about 12 years later than they imagined.

My take is that the pundits are right when they say Tesla will lose market share in the years ahead, but wrong when they assume that this will be a disaster for the company (as of this writing, the stock market seems to agree with me). However, predicting the future of Tesla and the auto industry is a perilous proposition. A tremendous amount of future growth is baked into Tesla’s stock price, and that growth could fall short of expectations. On the other hand, as someone who’s observed the growth of the EV market from the beginning, I’m still far from convinced that Big Auto will follow through on its electric promises, especially if the political winds shift to the right in the US, as they are likely to do a year from now.

Whatever happens, the auto industry is going to be in a state of revolution for at least a decade to come, and there will continue to be plenty of work for pundits, pontificaters and polemicists.  

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Written by: Charles Morris; Source: CNBC