Tesla (TSLA) - Get Report shares have fallen by close to a third since the clean-energy carmaker hit a January peak of $900, but it remains the world's most valuable automotive company even as its grip on the electric vehicle (EV) market, as well as the zeitgeist, looks increasingly fragile.
Spurred by governments pledging an end to gas-powered cars in major markets around the world, U.S. automakers are readying to invest more than $250 billion over the next five years to close the gap on Tesla's electric vehicle dominance and gradually wean themselves from a reliance on combustion-engine cars and light trucks.
Last month, Ford Motor F pledged to invest at least $30 billion in EVs by 2025, while General Motors (GM) - Get Report is reportedly ready to trump that investment by $5 billion. Both U.S. carmakers are aiming to expand battery production and EV model rollouts over the next five years as they chase Tesla's leadership at home and in China, the world's biggest car market.
And the pair have a lot of chasing to do: although electric cars comprise a tiny total of the 14.5 million vehicles sold in the U.S. last year, most were made by Elon Musk's company. Tesla sold just over 200,000 electric cars in the U.S. in 2020, nearly ten times more than GM's best (at least to date) EV option, the Chevy Bolt.
U.S. EV makers also facing increasing pressure from global giants such as Volkswagen (VLKAY) , which wants to sell one million electric and hybrid cars this year, while spending €35 billion ($42.4 billion) by 2025 to expand battery production and fleet offerings in a bid to dominate the European market.
Toyota (TM) - Get Report, the world's biggest carmaker and the first company to sell electric cars in volume, plans to have 70 EV models on the market by 2025 and use its legacy foothold in China -- where the Corolla is a perennial favorite -- to boost overall sales.
So where does that leave U.S. automakers in their drive to capture the lion's share of the industry's next century?
Much will depend on President Joe Biden's ambitions of investing around $175 billion in clean-energy car infrastructure, including charging stations and tax incentives, in order to spark a change in perception for the American car buyer, who has yet to find electric vehicles nearly as exciting as the media.
Tax incentives might help, and Senate lawmakers are moving a bill that could boost the current maximum credit for buyers of an EV from $7,500 to $12,500, but lifetime limits for manufacturers of 200,000 eligible vehicles is a laughably absurd figure (GM passed it three years ago) that is holding back EV adoption.
Battery costs, too, must come down if carmakers are going to build profit margins that justify the billions they've invested in developing EVs (that also limit shareholder friendly initiatives such as buybacks and dividends).
Ford hopes to cut its battery costs to $80 per kilowatt hour by 2030 from $155 currently, a figure GM hopes to reach by 2025, but Tesla wants to get that number down to $55, and if successful, would extend its lead over domestic rivals.
That might explain Tesla's near $600 billion market value -- some seven times more than GM, which sold 13.6 times more cars than Tesla last year -- and the assumption that it will continue its EV market dominance.
But that leadership is based on Tesla's strength in China, where the country's passenger car association said it had an 11.6% market share of EV sales last year, where it remains vulnerable to government edicts and favored domestic rivals, and the sale of carbon credits that flatter its bottom line and account for more profits than the sale of four-wheel products.
Ford and GM, meanwhile, face deep-pocketed rivals in the form of VW and Toyota that also have the added advantage of footholds in markets that the U.S. pair have either abandoned (Europe) or in which they are merely nascent (China).
Furthermore, tax breaks that create union jobs -- a stated ambition of the Biden EV infrastructure plans -- are unlikely to find favor in a bill that has little support among Republican lawmakers, and should Congress flip in 2022 to GOP control, you wouldn't bet on deeper support from a government saddled with record budget deficits and $21 trillion in debt.
Ford's coming electrified F-150, a revamp of the world's most popular vehicle, could change American buyer perception, but a decade of false starts, from the Volt to Focus and others, have yet to be fully overcome.
We won't be driving combustion-engine cars in 25 years, that's for sure -- in fact, we may not be driving much at all if autonomous technology reaches the lofty goals its creators have set -- but we simply can't say for sure whether Tesla, or any American company, will be making the ones that we do.