June 19, 2020

The competition’s wait-and-see approach allows Tesla to increase its lead

By most accounts, Tesla’s EV technology is about five years ahead of anything any other automaker can muster. For a decade or so now, we’ve been hearing that the legacy brands are preparing a wave of “Tesla killers” that will bury the pesky disruptor, but there’s still no sign of that.

Above: Tesla's Model X (Flickr: Alang7)

The majors’ EV strategies are best described as “wait and see.” They’ll continue developing their electric tech, but will produce just enough vehicles to satisfy government regulations, as they patiently watch what Tesla does. The problem with this approach, of course, is that Tesla won’t be standing still—it will be expanding its lead in Gigafactories, battery tech, software, charging, and manufacturing efficiency.

On Wall Street this week, Jeffries analyst Phillippe Houchois boosted his Tesla price target to $1,200 from $650. With Tesla, Houchois says "the gap with peers is widening" as the company "continues to challenge legacy original-equipment manufacturers."

This is not to say incumbent automakers are idle. Some are producing good-quality EVs, and a couple have ambitious plans for an electric future. However, in terms of volume, it’s plain that none have any real plans to challenge Tesla’s dominance in the EV market.

GM recently teased a new generation of EVs, and its publicity machine has been hyping the company’s “electric future” for some time. However, in a recent appearance on Bloomberg Television’s Leadership Live program (via CNET’s Road Show), CEO Mary Barra reiterated that she sees the electric transition playing out over decades. Asked how long it would be until all vehicles on the road are electric, Barra said it would be over twenty years.

Over at Ford, the vaunted electric F-150, which could be a game-changer not only for Ford, but for the entire auto industry, won’t be on the road for at least another two years. Ford COO Jim Farley told CNBC that electric versions of the F-150 and Ford Transit van will make it to market by mid-2022. Meanwhile, the company is putting most of its marketing muscle behind a new version of the fossil-fueled F-150, which is to be unveiled July 25. “The [legacy gas-powered] F-150, that is our key launch this year,” said Farley.

As Farley is certainly aware, several electric pickups, including Tesla’s Cybertruck, Rivian’s electric pickup and Lordstown’s Momentum pickup, aimed at fleet buyers, are all supposed to make the scene in 2021 (to say nothing of GM’s halo-model Hummer).

Above: Tesla's stock price ascension recently led it to become the world's most valuable automaker (Source: Visual Capitalist via YCharts)

Is this starting to sound like the beginning of a slow death spiral for the old-line auto brands? Wait, it gets worse. Tesla has several intangible assets that other carmakers are unlikely ever to match. One of these, as Professor Bradford Cornell points out in a recent article in ValueWalk, is its association with the inspirational SpaceX. The recent successful launch of two astronauts aboard the Crew Dragon spacecraft generated a huge amount of good will. Some of this stardust rubbed off on Tesla, and that’s surely one of the reasons for TSLA’s current lofty stock price.

Space travel may have little to do with cars, but SpaceX is a much-needed source of pride in America, proof that we can still do great things. I need hardly point out that no other automaker has anything remotely like this going for it. “Somehow the competitors have to convince both investors and future car buyers that they have the talent and creativity to compete with Musk, even if they are not putting astronauts into orbit,” writes Professor Cornell. “To date, they have been markedly deficient in that respect.”

As I’ve pointed out so many times, auto industry execs are far from naïve about what’s going on. Volkswagen's Herbert Diess recently invoked the historic Crew Dragon launch to rally his executives. As Bloomberg reports, Diess told a gathering of the company’s top management that they should take inspiration from SpaceX’s momentous achievement.

The troops at VW could surely use a morale-booster right about now. CNBC reports that Diess was just replaced as CEO of its core VW car brand due to pernicious "software glitches" as the company preps its ID.3 electric car. In the management reshuffle, Diess will still retain his title as head of Volkswagen Group.

In addition, it appears the coronavirus-related slowdown could have a negative impact on VW’s electrification plans. “We must significantly cut R&D expenditure, investments and fixed costs compared with the previous planning,” Diess recently told the German trade publication Automobilwoche.

Of all the legacy automakers, VW is the one that seems the most serious about electrification at the moment, and it would be a shame to see it back off its plans. Likewise, it’s a shame to see Ford and GM stand on the sidelines as other, newer companies try to get the market for electric pickup trucks rolling. There’s no schadenfreude here—we’d be delighted to see one or more of the legacy brands mount a credible challenge to Tesla, and so would Elon Musk, as he’s said many times. Unfortunately, trapped by the Innovator’s Dilemma, the men and one woman in the corner offices are apparently compelled to wait and see.