Reviewing Tesla’s Competitive Advantages As Jaguar Launches Well-Reviewed I-Pace

Luxury car manufacturer Jaguar is gearing up to launch its new I-Pace electric SUV this summer. The I-Pace is positioned slightly below Tesla’s(NYSE:TSLA) Model X (starting price of $69,500 vs $79,500) and will offer roughly 300 miles of range on a single charge across variants. Early reviews of the vehicle have been overwhelmingly positive, with reviews praising its design, interiors, and strong performance. While this marks the first time a mainstream luxury automaker is taking the fight to Tesla, which has so far dominated the premium electric car market, the shift to all-electric drivetrains is only likely to accelerate. Other manufacturers are doubling down on the market, considering the superior performance, lower maintenance and relatively lower mechanical complexity of electric vehicles. For instance, mass-market automakers GM and Nissan have proven that they can manufacture relatively compelling electric products such as the Bolt and Leaf, and Jaguar’s entry indicates that premium producers could also get the electric formula right. In this note, we take a look at where Tesla could stand as competition heats up in the EV market.

We have also created an interactive dashboard analysis outlining how Tesla’s revenues, operating profits and free cash flows could trend over the coming quarters.

Tesla’s Competitive Advantages

Tesla has a few competitive advantages that should allow it to stand out as the EV market becomes more crowded. For one, the company has been investing heavily in its battery manufacturing facilities (as much as $5 billion through 2020 in its Gigafactory in Nevada), building scale and eliminating costs. The company is aiming for battery cell costs of under $100/kWh per year, which is likely to be well below the broader industry, giving the company an edge in terms of input costs. Tesla’s could also have some advantages in the self-driving space, considering its mass volume of real-time data. As of December 2016 (the most recent data available), Tesla had logged a total of over 1.3 billion miles from autopilot equipped vehicles, compared to just about 2 million miles from Alphabet’s (Google’s parent company) fleet. This could give Tesla an edge in improving its machine learning algorithms, which typically get better as more data is logged. Tesla’s relatively large and expanding supercharger network could also provide the company an advantage in the near term, as it would take time for new entrants to build a nationwide charging network. Tesla’s early mover advantage in the space, and the related brand recall surrounding the company and its CEO Elon Musk could also help.

There Are Multiple Challenges

That said, it is possible that some of these advantages could diminish with time. For instance, on the battery front, quite a few of the improvements Tesla has been able to deliver have come by eliminating costs and building scale, rather than from significant R&D breakthroughs relating to core battery tech. As deep-pocketed automotive companies scale up their EV production, it’s possible that they can move further down the battery cost curve, challenging Tesla. In the self-driving and connected automotive technology space, Silicon Valley giants such as Alphabet are vying to become platform players, providing self-driving systems that car manufacturers can buy. If a platform concept catches on and is eventually deployed at scale by many manufacturers, it could diminish Tesla’s early lead in the space. Tesla could also be at a disadvantage in terms of tax credits in the U.S., its principal market. For instance, the Federal tax credit of $7,500 begins to phase out after the first 200k all-electric vehicles sold per manufacturer, and Tesla is likely to be reaching this milestone soon. This could increase the effective price of its vehicles, while other manufacturers who are just getting started in the EV space will still have access to these credits.

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