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Tesla Model 3 On Verge Of Dramatically Disrupting Mercedes, BMW, & Audi
June 9th, 2018 by Dr. Maximilian Holland
https://cleantechnica.com/2018/06/09/mercedes-bmw-audi-on-verge-of-dramatic-disruption-from-tesla-model-3/
As the Tesla Model 3 gains significant production volume, with most of the 2018 deliveries going to US customers, other players in the US small and midsize luxury car segment look set to see their sales halved in Q3 and Q4.
Tesla pointed to this emerging trend in its Q1 2018 Update letter, graphing Tesla’s growing sales relative to longtime leaders such as the BMW 3 and 4 series, the Mercedes-Benz C-Class and CLS, and Audi’s A4 & A5 offerings. As the model 3 ramp is now gaining traction, with estimated US sales in May of 9,000 vehicles (despite many units being diverted to Canada), the impact on segment competitors will soon be felt in earnest. Tesla has indicated that it will be almost exclusively selling the Model 3 cars it produces to the US market in Q3 and Q4 of this year, at volumes approaching 21,600 units per month (5,000/week) from late July or August onwards, perhaps pushing even higher in Q4.
Zach did a US sales volume comparison a few weeks ago, charting the inexorable rise of the Model 3 relative to its likely competition. Here, I take a look at how the sales of longtime leaders of the segment may be affected by the rise of the Model 3. The piece is also to remind ourselves what the German luxury brands have done, if anything, to prepare for this car. As a side note, vehicle classifications and segments are an imperfect art, and EVs muddy the water further by offering more interior space than combustion vehicles of the same external size (both these metrics often being used for segment classification). Electric cars are also inherently more “luxurious” and “refined” (quieter, smoother power delivery, lower centre of gravity, etc.). Regardless, most observers agree with Tesla about which established vehicles the Model 3 is most keenly going to be competing with in the US market.
US Small Luxury Car Segment
The total size of what is often referred to as the “small luxury car” segment was just shy of 450,000 units in 2017 (more precise numbers depend exactly how you define the category). Specific monthly sales of different models vary widely, so averages can give a clearer perspective. Using data from Statista.com, I use a 2017 average monthly figure (for the entire segment) of 37,326 units. The below chart clearly demonstrates that the segment has been dominated by German brands — BMW, Mercedes-Benz, and Audi — which each offer 2 or more models (data from Statista.com and GoodCarBadCar.net):
The German luxury brands achieved a combined 22,911 average monthly sales in 2017, some 61.4% of the total market. Other significant players in the segment include Infiniti, Lexus, and Acura, which together share 10,406 monthly sales (just under 28% of the market), and the remaining 10% is divided between Volvo, Cadillac, Jaguar, and Alfa Romeo.
Model 3 Enters
Now consider that the Model 3 will soon deliver into this same segment monthly volumes between 21,600 (at 5,000/week) and 26,000 (at 6,000/week). Let’s call it 24,000 per month — that’s over 62% of the entire segment’s average volume in 2017. It is more than the BMW, Mercedes, and Audi sales combined volume, which have been very happy to have the lion’s share of the segment to themselves up till now. Thus, there can be no question that all the incumbents in this segment are going to be massively disrupted.
The only small comfort that the existing players can hope for is that, since some of the Model 3’s buyers will likely be converting from a couple of nearby segments, the overall segment volume may grow somewhat (while those nearby segments correspondingly shrink a little), at least in the short term. But, inevitably, the traditional leaders of the segment will still lose a great deal of their share of the volume. Even if the segment grows from 37,000 to 50,000 per month (a stretch), the Model 3 will still take around half of it and the incumbents will see their combined sales cut from 37,000 to 26,000, losing effectively 30% of their sales. Arguably, the smaller brands tend to have more loyal customers (think Volvo and Jaguar owners), so the larger brands may lose a marginally higher share.
The US small luxury car segment is already quite mature (and arguably on a gradual downward slope in recent years), so the scope for it to grow in its entirety in the medium to long term would seem to be limited. More likely than the above growth scenario of 50,000 monthly units, as the dust settles, the segment may grow in the short term to somewhere between 40,000 and 45,000 per month (lets average that to 42,500), with Tesla taking around 24,000. In this case, the non-Tesla volume will be cut from 37,000 to 18,500. That’s less than half the previous volume to be shared between the incumbents. If these estimates turn out to be roughly accurate, here’s what the chart will look like:
German Luxury Brands Disrupted
I can’t imagine what it will feel like for the German luxury brands to lose 50% of their US sales in their most important segment over a matter of a just a few months. BMW’s total 2017 US sales were 305,685, so this segment’s 117,000 sales are some 38% of their total market. To lose half of this segment therefore means losing 19% of the brand’s total US sales. The segment is similarly important for the other German luxury brands.
What were they thinking? (Were they even thinking?)
But our sympathy for their loss of ~20% of US sales due to the arrival of the Tesla Model 3 should only extend so far, since they have had years to plan for this moment, and yet have done little or nothing to counter it. That’s despite the huge financial and engineering talent and resources at their disposal. Tesla announced its plans to eventually produce an affordable family car way back in 2006. It was always going to position itself as a prestige brand, close to the established luxury marques. These exact same German brands have already had first-hand experience (for several years already) of their market share being overtaken by Tesla in the large luxury sedan segment, both in the US and in Europe. The Model S has been competing with them there since 2012. And they have had 26 months of knowledge that the Model 3 is so desirable that it has had hundreds of thousands of folks queuing up for it. In short, they could see this coming from years away.
Let’s tell it how it is – the German brands have been sitting on their backsides fumbling around with press releases and half-promises of action on EVs whilst all the time continuing to invest the vast majority of their time and resources into fossil fuel vehicles and trying to wring the maximum revenues out of this century-old technology. They only have themselves to blame. Inexcusably, BMW even had a period of decent EV research and development before its release of the i3 in 2014 (concept shown in 2011), but senior management evidently turned their back on EVs after that (there’s been no new BMW EV since). Many of the engineers who worked on the project eventually left in disappointment with the company.
Batteries Better All Round
Since they have been in the business of selling cars for decades and more (we all know Benz’s storied history), some may wonder — how can they suddenly lose market position so catastrophically to an EV (an EV?) from a relatively new and small manufacturer? Let’s make no bones about it — EVs are a far superior technology to combustion vehicles. They can run on zero emissions, they are quiet, they are smooth and easy to drive, and they can be charged at home or work. Because of this, they are relaxing and calming relative to combustion cars, exactly the desirable traits of the luxury segments. They offer higher performance in overtaking situations, yet smoother operation in slow traffic. They have lower costs of energy and lower costs of maintenance. Anyone who has driven one is familiar with all these obvious advantages over combustion cars.
Until recently, despite the clearly superior technology, it could be argued that EVs were considerably more expensive than their combustion counterparts except at the most expensive end of the market (where the historically high cost of batteries is relatively less of a factor). But the German luxury brands are precisely the ones who were best positioned to exploit this high end of the market, since they sell hundreds of thousands of such vehicles worldwide every year. More than anyone else, they were ideally placed to explore the potential and desirability of EVs in the large premium segments. But they refused to do so, and instead they left that entirely to Tesla to exploit (thanks, guys!), allowing them to get a solid foothold.
Mid-Volume Markets First, Others Coming Soon
So aren’t middle-of-the-market EVs (such as the small luxury segment) still compromised either on price or on practical driving range? That’s long been the argument of the established auto manufacturers as to why they haven’t offered anything other than a few mediocre EVs as compliance cars.
But anyone watching the development of EVs knows that the price of batteries itself was not fundamentally destined to remain high. Rather, like most other technologies, the elevated cost was simply an effect of lack of attention and progress on their development and scale of manufacturing. Tesla saw this likely pathway of technological and cost evolution early on and has successfully navigated increasing research, development, and manufacturing scale, whilst others took little or no interest. In short, the established brands refused to consider how EVs could, with the right effort and strategy, be developed and marketed at the luxury end and eventually reduce in cost enough to break into higher volume segments. They preferred to rest on their combustion engine laurels.
Now we have the Model 3, which, largely thanks to Tesla’s focus on battery costs and powertrain efficiency, does have a very capable range for all practical purposes and is available at a cost (relative to its peers) that is indeed allowing it to break into this higher volume segment — a cost attainable enough for a record number of customers to queue up for one, and a package competitive enough to seriously upset the apfel cart of the German brands in this substantial slice of the market. The price of batteries will continue to reduce rapidly for years to come, with increasing proportions of the combustion automobile market losing out in their inevitable competitions with the superior technology of EVs.
Evolve or Get Disrupted
The traditional luxury brands should have been the first to turn their hands to EVs, but they missed that boat. Now karma comes their way. Their lunch is about to get eaten by a more visionary manufacturer and — even if they can admit their past mistakes and undertake a sincere change in direction — they will have to work very hard to catch up. If not, they will inevitably go under, because the Tesla tidal wave has arrived.'
Articles originally published on EV Obsession.
Tesla Model S is not just Dominating its Segment
By Shankar Narayanan -
June 11, 2018
https://1reddrop.com/2018/06/11/tesla-model-s-is-not-just-dominating-its-segment/
Tesla Model S is not just dominating its segment; its expanding it.
Model S pricing starts at $75,700 and goes as high as $136,200. From a pure price perspective, that covers competitors like BMW 5 series M550i all the way to Mercedes Benz S Class.
The price stretch opens up the possibility of attracting customers from multiple segments.
Luxury sedan segment customers
Large-size premium sedan customers upgrading to luxury segment
Luxury and premium SUV customers
We don’t really know how many low end Tesla Model S were sold and neither do we know how many high end Tesla Model S were sold. This makes it a bit difficult to clearly pin down which segment customers are buying Model S. But let’s give it a try.
Tesla’s potential customers are the ones who are ready to shell out $75K to $136K. As a disruptive product with an aura around it, Tesla can convince customers who were planning to spend less than $75K, to upgrade themselves to a Tesla. Same goes for customers who are ready to spend more than $136K.
The further the price moves away from the median price of Tesla Model S, the lower the odds of a customer buying the electric sedan.
If I were to draw a chart, it will look like this.
The potential pool of customer base increases due to customers who fall outside the range. In case of Tesla, these are customers in the less than $75k and greater than $136k price point.
How many customers a car draws from outside the range depends on many different factors. Disruptive products always pull customers who fall outside their core market.
Tesla Model S competes with Audi A7 & A8, BMW 6&7 Series, Jaguar XJ, Lexus LS, Mercedes Benz S class and Porsche Panamera. In 2012, when Tesla Model S was launched, the luxury sedan market sold over 69K units.
The segment expanded to +93K units in 2015 before declining to +79K units in 2017.
Did US Luxury sedan segment enjoy favorable market conditions and a stable economy?
Little bit.
Between 2013 and 2016, the number of households making more than +100k has gone up from 22.6% to 26.2%, while median income increased by 6.9%. Decent growth but not spectacular enough to drive double digit growth in luxury sedan market.
If we exclude Model S and Mercedes Benz S Class, sales drops from +54K units in 2012 to +33K units in 2017.
US luxury sedan segment has expanded over the last five years.
If we remove Model S , market has shrunk.
If we remove Model S and Mercedes S class, market has shrunk sharply
Conclusion:
Tesla has drawn customers from other segments to expand US luxury sedan market.
Tesla is also taking customers away from existing players in the US luxury sedan market.
Tesla’s competition has been losing market share for the last four years and the slide is yet to be arrested. The slow growth in sales since 2015 shows that Tesla Model S is closer to its peak sales performance in United States. Further increase will only come at the cost of competition. And the odds are high for the current trend to continue.
You lose, I gain.
Tesla Taps Into 'Breakthrough' Battery Innovations
Elon Musk recently hinted that Tesla might be close to its goal battery efficiency of $100 per kWh.
https://interestingengineering.com/tesla-taps-into-breakthrough-battery-innovations
The Tesla shareholder meeting earlier this week held a lot of announcements and excitement, but one announcement, in particular, has fans of Tesla's battery systems really intrigued.
During his presentation, Elon Musk described the company's battery updates as "breakthrough" -- a word he's often careful and selective to use. At the shareholder meeting, Musk used the term to describe what Tesla is doing in both battery density and cost.
The goal for the electric vehicle company has been to create battery packs with a cost of $100 per kWh. That price would make Tesla even more competitive with its gas-powered counterparts on the road.
Shareholder Joel Sapp took to Twitter to ask "has Tesla broken the seal of $100/kWh?" during the stakeholders meeting. Tesla did not mention its actual battery cost. CTO JB Straubel spoke first in response to Sapp's question:
“It’s difficult for us to talk about specific cost numbers. It’s a difficult topic, but we are still very confident that we have the best price and performance of anything out there in the world. If there’s anything better, I don’t know about it and we have looked as hard as we possibly can. We try to talk with every single battery startup, every lab, every large manufacturer. We get quotes from them. We test cells from them. If there’s anything better, we are all ears, we want to find it, but we haven’t found it yet.”
But then Musk took the microphone and gave a bit more of a direct answer:
“We think at the cell level probably we can do better than $100/kWh maybe later this year … depending upon [stable] commodity prices…. [W]ith further improvements to the cell chemistry, the production process, and more vertical integration on the cell side, for example, integrating the production of cathode and anode materials at the Gigafactory, and improved design of the module and pack, we think long-term we can get below $100/kWh at the pack level. Which is really the key figure of merit for a car. But long-term meaning definitely less than 2 years.”
Musk also predicted a 30 percent boost in volumetric energy density in just a couple of years. He noted the technology "needs to be scaled and made reliable."
Tesla Supercharger Tally Now Exceeds 10,000
https://insideevs.com/tesla-supercharger-tally-exceeds-10000/
The number of individual stalls in the Tesla Supercharging network now exceeds 10,000… several months behind the schedule, but still it’s the biggest such network by far in the world.
Tesla announced that 10,000 spots would be available by the end of 2017, but it did happen. The network is, however, expanding at a decent pace to handle a growing number of Teslas, especially the upcoming flood of Model 3 cars.
According to Supercharge.info, the number of stations increased in the past 12 months by over 50%, from 844 to 1,273, while the number of stalls shot up by over 76% as the stations are getting bigger (new installations and upgrades).
North America: 583
Europe: 404
Asia Pacific: 283
The Tesla Supercharging asset is one of the most valuable Tesla has and time will tell how much of an advantage the proprietary fast-charging network is compared to general charging networks used by other manufacturers.
The next question we seek answered is the promised power output upgrade of Superchargers, as the CCS Combo alliance is moving towards 150 kW and, in some cases, even 350 kW.
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