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Are these two entrants a challenge to Tesla?

Stocks in this article: GM TM TSLA

Chris Lau, Kapitall: Will Tesla be able to fend off challenges from Mercedes Benz and BMW?

Tesla (TSLA) is enjoying a monopoly of sorts in the electric automobile market. Its refined style, novelty, and huge fan base all support the phenomenal growth in demand for its products.

Read more from Kapitall: Will the Alibaba IPO live up to its lofty expectations?

Though shares are down 20% from the $260 high reached earlier this year, Tesla’s stock is still around $216. Unfortunately, it is now about to face competition from Mercedes (OTCMKTS:   DDAIF) and BMW (OTCMKTS:  BAMXF).

Mercedes enters the market

For a mere $41,560, Americans will have the option to buy the very first EV Mercedes-Benz. The vehicle is based on the B-Class chassis, will be front-wheel drive, and will have 177 horsepower. Driving range will be 85 miles, which is lower than BMW’s i3 EV, which gets 100 miles. By way of contrast, Toyota’s (TM) offering has a range of 103 miles.

No access to Tesla Charging station

The Mercedes EV will not have access to Tesla’s charging network. This means limited charging options for buyers. Charging time is also much slower without access to the network.

Strong demand for BMW

BMW started deliveries for the i3 EV in November 2013. It already has around 10,000 orders, and plans to start selling the car this quarter in the US. The i8 plug-in hybrid is set to be released by the middle of this year.

Valuation

If anything, the highest risk for Tesla shareholders is in the valuation of its shares. The EV market is very new, and opportunities are still vast. Even with new entrants entering the market, demand for Tesla vehicles is not expected to drop.

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