Tesla’s Competitive Advantages Set to Destroy the EV Market
The world we live in today depends upon a considerable amount of fossil fuels, from fueling our cars to powering our homes. For several decades, the world’s overdependence on fossil fuels has become a public concern — noticeable shifts in weather patterns and sea levels have caused a shift in focus toward renewable energy. Enter Elon Musk, the founder and CEO of Tesla, who had the vision of creating a clean-energy alternative form of transportation. Through disruptive, innovative thinking, Musk created a unique business model that challenged the status quo and many well-established gas-powered companies. This has allowed Tesla to earn its position as the leader of the electric-vehicle industry and maintain its spot on the throne in years to come.
Tesla’s competitive advantages start with its broad market appeal and ability to offer the some of the lowest prices for electric vehicles For instance, Tesla’s Model 3, known as one of the most affordable in the EV market, is currently priced at $42,990, well below the US’s average car price of $49,500. This current price is reflective of the recent price cuts from Tesla that saw prices slashed anywhere between 6 to 20 percent, which has significantly increased demand for Tesla’s electric vehicles. This, in turn, caused Tesla’s competitor, Ford, to significantly reduce the price of their vehicles to stay in competition with Tesla. For example, Ford’s lower-end cars were reduced by $600 to $900 and their higher-end cars were reduced by $3,600 to almost $6,000. Rather than improving market share, however, Ford’s move squashed their margins heavily, in part because production costs did not change. Even before Tesla’s price cuts, Tesla vehicles were outselling Ford’s Mustang Mach-E. Reducing prices on their models has significantly benefited Tesla, as it was seen as an additional enticement for customers who already gravitated toward Tesla’s brand recognition and loyalty by virtue of its uniqueness.
Elon Musk has recognized that Australia and China are some of the largest lithium producers in the world, which has allowed him to secure a long-term and stable supply of lithium for Tesla. He has been able to create a network of reliable lithium providers for Tesla, notably Ganfeng Lithium (Chinese company), Sichuan Yahua Industrial Group (Chinese company), and Liontown Resources (Australian company). Although it proved to be more challenging at first, he also turned his attention to US soil to get an additional supply of lithium. Tesla has a long-term contract with Piedmont Lithium, an American company that focuses on mining and exploring lithium reserves. It’s expected that Piedmont Lithium will provide Tesla with 125,000 metric tons of lithium from the second half of this year until the end of 2025. This will greatly impact Tesla’s ability to scale its lithium-ion battery production.
Moreover, Tesla’s first-movers advantage has allowed it to secure a larger market share than all other competitors. This advantage has allowed Tesla to create a brand image for itself that has allowed it to outperform its competitors in sales. In 2022, it was able to sell 1.3 million EVs at a global scale, while GM, Ford, Rivian, and Lucid have not reached 30% of that number at the US scale combined. Currently, it has secured an EV market share of approximately 65% in the United States and roughly 20% globally. Cathie Wood, CEO of Ark Invest, an investment management company, believes that Tesla can take 20–25% share of the total automotive market (including both gas and electric vehicles) by 2026 and 60% of the EV market share worldwide.
From a stock market perspective, some of Tesla’s competitors such as General Motors, Lucid, and Rivian are statistically not on par with Tesla. Currently, Tesla’s P/E ratio, a financial metric used to evaluate a company’s current stock price relative to its earnings per share, stands at 49.33. General Motors, Rivian, and Lucid stand at a 5.45, N/A, and N/A respectively. Rivian and Lucid do not yet have a P/E ratio because they are not yet deemed profitable on their EVs. Tesla’s P/E ratio being significantly higher than its competitors supports the belief that the company is highly valued by investors and has the ability to rake in profits. Market capitalization is also significantly larger for Tesla, as it stands at 602.476B. This is compared to the relatively meager market caps of General Motors, Rivian, and Lucid which are 47.013B, 12.032B, and 14.992B, respectively. Given that Tesla’s market capitalization stands at anywhere from 12 to 60 times the other companies, we can infer that investors find greater potential in Tesla compared to its competitors. It will take years of significant time and resources for other EV companies to achieve the level of Tesla’s current status, at which time Tesla will have taken significant strides toward a new level.
An essential part of Tesla’s production and expansion strategy is the development of giga-factories. Tesla currently has seven giga-factories across the world, including ones in Austin, Texas; Berlin, Germany; Shanghai, China; and Storey County, Nevada. The giga-factories in Texas and Berlin currently produce Tesla’s Model Y SUV, and the Gigafactory in Shanghai produces Model 3 sedans. Meanwhile, the Gigafactory in Nevada focuses on producing the 4680 battery cells for Tesla’s electric vehicles. This strategy exemplifies Tesla’s ability to vertically integrate, which allows a company to control stages of its production in-house. As part of its expansion plans, Tesla is working on expanding to produce 100 giga-watt hours of additional battery capacity. Tesla’s giga-factories allow it to produce more electric vehicles, reduce battery costs, and increase global reach.
Tesla’s technological innovation, brand recognition, and vertical integration together create significant competitive advantages that place it at the helm of the electric vehicle market. This company has impressed investors and consumers alike and has brought a newfound mission amongst communities to reduce carbon emissions. With the innovative mindset of Elon Musk, this company is positioned to continue to forge ahead in the electric vehicle market in years to come.
