Wednesday, February 24, 2021

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Everyone is coming for Tesla's crown

Tesla (TSLA) is synonymous with electric vehicles, but a new generation of EV automakers inspired by CEO Elon Musk’s electrified empire may be coming after its crown.

Lucid Motors, which is headed by former Tesla engineer Peter Rawlinson and promises better performance than Tesla, announced on Monday its plans to go public. Meanwhile, Amazon (AMZN)-backed Rivian, which is also planning an IPO this year, is taking on Tesla in the truck space. Traditional automakers like Ford (F) and Volkswagen also pose a threat to the world leader in EV sales. And then there’s potentially Tesla’s biggest eventual rival: Apple and its own EV ambitions.

Tesla clawed its way to the top of the EV market through the sheer will of outspoken, and often mercurial, CEO Elon Musk. And while, as of Tuesday, Tesla’s stock price dropped as much as 18% in the last month following its $1.5 billion bitcoin bet, the company is still up 319% in the last 12 months.

But it’s going to need much more than a charismatic leader and rabid fan base to maintain its lead in the coming years. According to Deloitte Insights, EVs will make up 32% of new car sales by 2030, up from just over 2.5% in 2020 — meaning there’s plenty of space for competitors.

“Tesla has lots...of competition,” Craig Irwin of Roth Capital Partners told Yahoo Finance. “There are companies that have superior technology in autonomous, there are companies that have superior technology in batteries, there are companies that have superior technology in electric vehicles. Tesla has great cars, don't get me wrong, but you're going to see a number of very exciting developments over the course of the next year.”

So how can Tesla hold onto its lead? By continuing to press its global expansion into India, and ensuring its secret sauce — its technical prowess — stays ahead of its rivals. But the increasingly crowded market for EV vehicles could throw some obstacles in Tesla’s path.

How Tesla can hold its lead

For Tesla, global expansion is the easiest way to keep pace with the new crop of competitors, and it’s made progress on that front. The company has already rolled out its vehicles and built a plant in China, and is in the midst of constructing its first European plant in Germany.

Tesla also has the advantage of understanding the difficulties of bringing its own manufacturing capabilities online. The company went through what Musk called “production Hell” when getting its Model 3 assembly line up and running in 2018. The firm was just weeks from going under during the build up, and in a recent tweet Musk revealed that during the buildout he tried getting in touch with Apple CEO Tim Cook to sell the automaker.

While Tesla’s move into China was crucial because the country has the world’s largest car market, its next move into India, also one of the world’s largest markets, will be nearly as important for the company’s continued growth.

“The key development this year is the start of sales into India,” Irwin noted, adding that he’s heard “chatter” that Tesla has already selected a site for the Indian factory.

Tesla, which was down just over 2% as of market close Tuesday, also needs to ensure it doesn’t get caught up in its recent move into bitcoin (BTC-USD). The company put $1.5 billion of its cash into the cryptocurrency, helping to send bitcoin soaring even higher. And while it saw roughly $1 billion in profits on paper, Musk’s subsequent statements on the cryptocurrency may have helped send its price down.

Wedbush analyst Dan Ives, however, warns that Tesla’s crypto play shouldn’t distract investors from the company’s overall efforts.

“This is a golden age of EVs and we forecast that $5 trillion will be spent over the next decade,” Ives told Yahoo Finance. “EV, led by Tesla, is changing the way investors value these companies going forward. It’s not your grandfather’s auto industry anymore, as Detroit is showing on EVs.”

Besides, there are plenty of other companies taking aim at Tesla in the meantime.

Tesla’s coming competition

Lucid Motors revealed Monday it was going public via a reverse merger with special-purpose acquisition company, or SPAC, Churchill Capital IV (CCIV). The deal values Lucid at a whopping $24 billion and will provide the upstart automaker with $4.4 billion to expand its Arizona-based plant.

Lucid aims to get its high-end luxury sedan, the Lucid Air, on the road this year, and eventually have the Arizona plant pumping out as many as 365,000 units a year. The company is also working on production of its luxury SUV, the Lucid Gravity, which is set to launch in 2023.

The Lucid Air Dream is Lucid’s top-of-the-line model priced at $161,500, well above the $119,900 Tesla Model S Plaid. “Our first product is unashamedly a luxury car that will compete with the Mercedes Benz S-Class at the top table,” CEO Peter Rawlinson told Yahoo Finance Live Monday. “And currently there isn’t an EV offering in the true luxury arena.”

What makes Lucid so impressive is that, according to its own number, it already outclasses Tesla in terms of battery performance. With an estimated range of 503 miles per charge, the Dream’s battery can also be charged to 300 miles in just 20 minutes. Tesla’s long-range Model S, meanwhile, gets just 412 miles on a charge, and can be charged with up to only 200 miles of power in 15 minutes.

Lucid is not the only competitor coming after Tesla, of course. Rivian is also set to launch its long-awaited electric truck this year, with backing from heavyweights including Amazon, which is preparing a fleet of Rivian-based electric delivery vehicles. Rivian also has the backing of Ford, which will use Rivian technology in its own offerings. The company promises more than 300 miles of range in its R1T truck with a starting price of $67,500.

Rivian is also expected to IPO this year at an estimated valuation of $50 billion, according to Bloomberg. That company is powering out of the gate with an electric truck, setting up stiff competition for Tesla’s upcoming Cybertruck, which is also launching this year.

Tesla has even managed to inspire an electric truck company fittingly called Nikola (NKLA) — Tesla is named after the inventor Nikola Tesla — though that firm was blasted in a report from short seller Hindenburg accusing it of being a fraud. (Nikola denied the report and called it a “hit job.”)

Traditional automakers entering the space include Ford, which will launch its highly anticipated Mustang Mach-E crossover in the coming months at a starting price of $42,895 and upwards of 250 miles per charge. Patrick Moorhead of Moor Insights & Strategies says that Volkswagen could become a Tesla rival, too, noting that a large automaker could, in a few years, become the No. 2 EV automaker after Musk’s company.

Then there’s Apple, which is rumored to be teaming up with an established automaker like Hyundai, on an electric vehicle of its own. Still, details on how Apple will actually manufacture the car are scant, and it isn’t expected to hit the market until 2024.

But Apple is just one part of the bigger picture, which is this: The EV field is becoming crowded. Tesla may have the best-selling EV of all time, by a wide margin, as my colleague Rick Newman pointed out, but the flurry of new competitors may expose its weak points.

Those flaws include an unpredictable CEO who was sued by the SEC over a tweet saying he had funding to take Tesla private, as well as fatal car crashes that have invited scrutiny into its autopilot system. Tesla may still be the EV leader despite these flaws — but now is not the time for Elon Musk to take his empire for granted.

By Daniel Howley, tech editor. Follow him at @DanielHowley