Threat Is Real: Many Tesla Buyers Cross Shop German Brands
Buyers of Tesla’s electric vehicles very often cross shop with German luxury car brands (BMW, Mercedes, Porsche, Audi, etc.), according to Edmunds. And this is even before the Model 3 arrives.
Apparently, nearly 30% of Tesla buyers consider purchasing a BMW model before settling on the Tesla — and around 20% consider an Audi or Mercedes. A further 12% also consider purchasing a Porsche before deciding on a Tesla. This compares to only around 6% of Tesla buyers who considered purchasing a Dodge beforehand, for example.
None of this is surprising, of course. It’s long been clear that Tesla has been stealing substantial market-share from the German luxury brands — and that much of the company’s growth to date has been at the expense of these brands.
“The decisive factor is what’s happening inside people’s heads,” commented Jürgen Pieper, an analyst at Bankhaus Metzler. “Many see in Tesla the innovation they’re missing from the Germans.”
Bloomberg provides more:
Executives at rival carmakers privately squawk about Tesla’s poor track record of manufacturing delays and persistent financial losses. Yet they can’t ignore that Musk’s products are exciting consumer passions in a way that incumbent automakers haven’t for decades.
…The Tesla advances and the threat of Apple entering the car business have led German brands to show lots of electric concept vehicles recently. But these cars are years away, while Tesla plans to start delivering the Model 3 in late 2017.
…Competition from the Model 3 might prompt German carmakers to drop some prices as much as 10% to defend their US market share, says Stuart Pearson, an analyst at Exane BNP Paribas. Tesla is aiming the Model 3 at “those looking to spend roughly $40,000 on a car, and that’s the core target market for BMW and Mercedes basically,” he says. “The fact is they don’t really have an answer to the Model 3 until the next decade.”
The bottom line: Tesla’s Model 3 could draw sales from German luxury carmakers’ bread-and-butter vehicles, prompting price cuts.
Considering what’s happened to the market shares of the German luxury companies since the launch of the Model S, it seems fairly likely at this point that the Model 3 will hit the market shares and pocketbooks of the German luxury brands pretty hard.
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They need to be hit. The German luxury brands all presented record earnings for 2015. They won’t stop making ICE engines if people all over the world throw money at them for their ICE cars. Tesla is needed very very much.
At around the time Tesla was starting with their roadster, I remember reading an article where BMW official message was that they were not believing into electric cars at all. It’s a pity I can’t find back this article because BMW’s message was very aggressive against EVs.
It’s believable. If you were running a car company and looked at battery price then manufacturing EVs probably made no sense.
Tesla took a different tact. They approached the problem in terms of how to build an acceptable EV. They looked deeper and harder to find a route to making affordable EVs.
It’s almost as if they made electric cars like their life depended on it.
Frank, you’re close. Mr. Musk is on record as stating he wants to convert the personal transportation fleet from ICEV to EV because modern humanity’s life on earth depends on it.
Talking about german manufacturers: the eGolf will arrive with 35,8kWh this fall.
http://www.heise.de/autos/artikel/VW-e-Golf-Groessere-Batterie-mit-35-8-kWh-ab-Ende-2016-3213682.html
That’s a lot of energy for a regional car, but not quite enough for a first car ICEV replacement. It just feels like they held back from making it a winner.
Who the heck wants to own a Golf?
“Competition from the Model 3 might prompt German carmakers to drop some prices as much as 10% to defend their US market share”.
I don’t think 10% will do the trick. There’s more going on here than just price.
Enough cuts might keep up their sales numbers. Cuts could mean that people who couldn’t afford a BMW/whatever might move up to one.
But BMW and the others would be looking over at Tesla’s much higher gross profit margin and their shrinking GPM and realizing….
And if price cuts are needed to keep up sales numbers, the perceived brand value will become diluted, like the Cadillac and Lincoln brands.
More to the point. BMW’s net profit has not reached 10% for the last three years and more. Averages about 7-8%. A 10% discount comes straight off the top line. World wide, margin pressure like that would cancel their dividends, tank their stock and basically bankrupt them.
And don’t forget the workers income in Germany and any other people that depend on those people for business.
The industry in accord with the deflationary pressure of the EU did manage to keep wage increases low in the last 1-2 decades in Germany.. the above will mean there is another decade ahead of the same for them.
I don’t want to be in any mainstream politicians pants over there as all this boils down to more voters for the radicals. The socialist party is down to 19% share these days..
There’s a solution.
BMW could start building serious EVs and improve their future. It looks like the Japanese market share is available for someone to grab.
There’s a thought!
Or they could ask Tesla nicley if they could produce the Model 3 under licence in Europe?
Surely the good managers and good engineers remaining at BMW, Audi, and Mercedes are looking to move on to manufacturers which have a future.
ICE-age managers can’t recognise the end of their era and can’t imagine a path to the future. That’s why the Germans offer half-baked solutions while telling us their electric cars are coming in the 2020s. That’s after current management will have retired. Shareholders and capable staff members can’t wait that long.
What I find saddening and unacceptable is that, once again, the state will bail out these laggards with people’s money purportedly “to save jobs”.
German automakers are the main lobbying force here in Europe trying to delay stricter CO2 emission targets for cars because their bread and butter is selling big cars and high horsepower engines. They’ve got too much money invested in ICE technology and going electric is almost like reseting the counter and starting in a level playing field. It’s good for all that they face competition from 0 emission vehicle makers.
And with a barrier of entry that centers around software….
Tesla’s patents are open. Seems like BMW could license the technology from Tesla to jump start the development and combine it with what they are using for the i8 and i3. Now if they just had some more batteries….
Yes sharing patents could save BMW some time but perhaps not as much as one would think. A patent is just an idea on paper. From that Engineers need to incorporate those ideas into specifications and blueprints for a real vehicle. Then all of the dies, jigs, and fixtures need to be made. Then the robotics need to be programmed to use those devices. Then the design has to either be factored into the existing production space or new factory space found. So there still is a lot to be done even after the engineers are given the green light.
Substantial market share stealing by a company that sold about as many cars as Volvo increased their sales volume with last year.
It will be a few years before Tesla’s total car sales in history match the number of cars that Volvo sold just last year.
Do not misunderstand me, I do think Tesla is great but it is not exactly a threat – more like a much needed wake up call.
Tesla’s got to make hay while the sun shines; put as much distance between them and everybody else. I think the Germans get it but a lot of the other manufacturers don’t. Every month that goes by without serious competition is another month others will have to play catch-up.
I predict that we’re going to see a “tipping point” (ie as in Malcom Gladwell’s book) and once that point is reached, ICE sales will fall through the floor. If manufacturers don’t have sufficient offerings by that time they could become dinosaurs. What’s interesting about “tipping points” is that they happen suddenly and unpredictably.
Kallen, this is why I think Tesla will have three factories building the Model 3 by 2018. As we have seen with the model 3 reservations, the demand will be there.
I couldn’t agree more! Cheers!