Last month General Motors (NYSE:GM) slashed the price of its Chevrolet Volt by up to $5,000. In doing so, GM follows the suit of Nissan which also cut the price of its Leaf EV by as much as 12% earlier in the year. The sales for Leaf had risen more than 300% in May to surpass those of the Volt. However, there is more to these price cuts, and the big automakers’ recent gains in making electric cars more appealing to the general public poses as a significant threat to the headline grabbing Tesla.
Tesla will introduce its high volume car, called the Gen III not before 2016 or 2017. To assume that the success of the Model S is a harbinger of the success of other upcoming Tesla models such as the Model X or the Gen III could be over optimistic.
- How Much Of Tesla’s Overall Revenue Is Unrecognized Due To Accounting Principles?
- How Much Do Tesla’s GAAP and Non GAAP Margins Differ?
- How Much Revenue Does Tesla Make Per Each Unit Vehicle Sold?
- How Has Tesla’s Gross Margin Behaved Over The Last Three Years?
- How Much Does Tesla Spend On Research and Development?
- How Much Does Tesla Spend On Selling, General and Administrative Expenses Per Unit Sold?
Electrics Getting More Attractive
Besides the price cuts, the automakers are trying their best to make these vehicles attractive for the public. Due to a limited electric range, it’s almost impossible to use these cars for cross country travels. Therefore, Fiat is offering up to 12 days of free rental through Enterprise car rental company. Similarly, BMW offers users the choice of buying a range extender option for $4,000 in order to remove the long distance related range anxiety. 
The inconvenience caused in charging batteries is another issue. Generally, charging a battery can take several hours to charge. Chevrolet offers a DC charging in its new Spark EV which could reduce the charging time significantly. Up t0 80% of the battery can be charged in 20 minutes. Currently, most electric cars use AC chargers which take longer to charge. Automakers including GM and BMW are putting a good amount of money on making DC chargers more feasible. 
Although the auto companies are hardly making any money on the sale of electric vehicles (they probably are losing money at the moment), no major auto company can afford to ignore this segment due to the size of the opportunity that lies ahead. Some years back, few would have been bold enough as Toyota to invest in hybrid technology. But the results have paid off as the automaker has sold more than 3 million Prii since its inception. 
Consumer interest is higher than ever for electric and alternative fuel cars. Governments around the world are doing their bit by offering tax credits for every electric car purchased. States like California are offering an additional $1,500 tax incentive on top of the Federal tax credits. The technology is improving continuously and in a few years time, such cars can offer a formidable challenge to gasoline powered ones.
Not only are automakers debuting cars at the lower end of the spectrum, they’re now taking the mid level and the luxury segment pretty seriously as well. BMW’s i3 starts from about $50,000 while Cadillac will also launch the new ELR, an electric SUV, next year. The success of the Model S somewhat acts as a litmus test for the demand of the more expensive electric vehicles.
The electric and hybrid car vehicle market is also heating up due to the tough regulations placed upon the automakers by the State and Federal governments. For example, zero emission vehicles must account for at least 15% of the new vehicle sales by 2025 in California.
Tesla will have to fend off other automakers who are increasingly offering improved propositions at lower prices. And in another three to four years’ time (by the time the Gen III is launched), you will have a wider variety of electric cars with better electric ranges. It will be all the more difficult for the Gen III to be considered as ‘disruptive innovation’, something which the Model S is associated with.
We have a price estimate of $69 for Tesla, which is about 40% below the current market price.Notes: