Who Will Challenge Tesla and Who Won't

NEW YORK (TheStreet) -- Investors in Tesla (TSLA) need to understand what and when the other car companies intend to do to compete with Tesla, if anything at all. This article is an attempt at a tutorial.

There are at least three attributes that make Tesla into a new kind of automobile experience: an all-electric car that is EPA-rated at 265 miles, almost three times its nearest all-electric competitor; a superior infotainment system fitted in two screens, including one 17-inch touchscreen; a direct sales model, essentially copying the Apple (AAPL) and Microsoft (MSFT) Store models.

This article focuses exclusively on the first of those three attributes. (I will deal with the other two in separate articles.)

It is fair to say that Tesla is enjoying a scarcity premium to its stock market valuation resulting from selling an all-electric car with by far the highest performance and longest range. As real or potential investors, we need to have a view on how long this scarcity premium will prevail -- and for that matter how long it will even be important, even if it prevails.

Competition from pure electric cars: These cars have been priced mostly between $30,000 and $40,000, before tax adjustments, and their EPA-certified electric ranges are mostly between 75 and 90 miles. By a wide margin, the sales leader here has been the Nissan Leaf, with approximately 100,000 sold globally in three years of production -- half of which in the U.S.

Competition from plug-in hybrids: These cars have also been priced mostly between $30,000 and $40,000 before tax adjustments. To a far wider degree than pure electrics, these cars differ between each other in architecture and capability. The size of battery, and the way the electric motors interact with a gasoline or diesel engine, differ materially from car to car.

The sales leader in this category has been General Motors' (GM) Chevrolet Volt, which has sold a bit over 50,000 units since inception three years ago, mostly in the U.S., followed by the plug-in version of the Toyota (TM) Prius and two Ford (F) models (C-Max and Fusion).

Alternative energy storage systems: Hyundai, Toyota and Honda (HMC) have announced fuel-cell cars for commercial availability in 2014-15. These cars have electric motor drivetrains just like pure electric cars but instead of storing most of the energy in a battery it is stored in a hydrogen tank, which can be refilled within a few minutes, almost like in a gasoline/diesel car. Initial cars are said to have a range of 300 miles.

The most fundamental problem with fuel cell cars is that relative lack of infrastructure. There are approximately 10 stations in the U.S. now, and most of them in the Los Angeles area.

Hyundai, Toyota and Honda are hanging their fuel cell hopes on a statement by the governor of California that 100 stations will be built in the state. When I asked the car manufacturers at the recent LA Auto Show as to when this will happen, they seemed to have no clue.

With that in mind, let's go through a list of some of the major car manufacturers and comment on their plans to compete with Tesla -- or not:

Nissan: Building on the Leaf, Nissan showed an Infiniti concept car approximately two years ago that was meant to take a step in the direction of competing with Tesla. I don't know what Nissan was thinking but it was supposed to have an electric range not materially more than the Leaf.

With Tesla at 265 miles and talking about future cars with a 400- to 500-mile range, what sense would it make for Infiniti to sell a car with 90 miles of range unless it was dramatically less expensive? Even Tesla's upcoming $40,000 car is said to have a 200-mile range.

Nissan probably realized that if its Infiniti would cost $50,000 and have a range of even as much as 150 miles, nobody would buy it when Tesla would have a 200-mile car for $40,000. We're talking about year 2017 here, but still.

So what did Nissan do? It basically scrapped the concept car and went back to the drawing board. Presumably it will only return when it has something in mind that will compete with Tesla on those basic numbers -- 200-mile range, 300, 400 and 500 miles at competitive prices in 2017 and beyond.

The bottom line for Nissan is this: Whether it will be capable or not, at least it has some intention to compete with Tesla on a fundamental architectural level. It will be closer to 2017 when we start to see how successful Nissan will be.

General Motors: GM's executives speak very respectfully about Tesla. They seem more aware than most car companies that Tesla is already eating the competition alive in the higher price ranges, and that this could become a huge issue for GM when Tesla starts producing its stated $40,000 car in 2017.

GM has delivered extremely well-engineered electrified powertrains with the Chevrolet Volt, Cadillac ELR and Chevrolet Spark. It could easily build on these with a new line of of nameplates under its various brands. It seems clear to me that they will.

BMW: In many ways, BMW has taken a very radical approach to its electric cars with the i3 and i8 having very differentiated design and new construction based on CFRP (carbon fiber reinforced plastic). These cars are extremely light, and will be on U.S. roads around the middle of 2014.

Aside from the carbon fiber bodies, BMW's approach most closely resembles GM. Basically, the electric motors are full power, and in some cars a small gasoline engine is available for extended-range driving.

Ford: We all know what plug-in models Ford has in the market today. Its approach to plug-in hybrids is almost identical to Toyota, VW/Audi/Porsche and, for the most part, Honda. I know nothing about Ford's future plans. So far, Ford has stayed away from dedicated plug-in platforms, leading to batteries being placed in the luggage compartments, in turn causing tiny luggage spaces remaining.

Chrysler/Fiat: Obviously, we have the Fiat 500 electric selling in California, but Fiat's CEO famously said that it's a huge money-loser, to the tune of at least $10,000 per car. He is probably telling the truth. In either case, there are no signs that Chrysler/Fiat will be a leader in the proposition to compete with Tesla before 2017.

Volkswagen/Audi/Porsche: This group has, just like Nissan, said that fuel cell cars are unrealistic in the near future, and has chosen to focus on the kind of plug-in hybrid architecture also pursued by Toyota, Ford and mostly also Honda. In addition, VW is launching two pure electric cars -- the eUp for Europe, and the eGolf for more global consumption. None of those compete with Tesla, but rather mostly with Nissan Leaf.

Mercedes: In recent meetings with Mercedes, I was told that Mercedes views electric cars as short-range and for only small cars. For larger cars, the company is betting on fuel cells. Aside from a small market trial mainly in Los Angeles, it has not announced a broadly commercially available fuel cell car.

That said, Mercedes has an investment in Tesla, and will begin selling a Tesla-based B-Class in 2014 for a base price under $45,000. It is likely to have a range of 90 to 100 miles on the U.S. EPA test, according to some estimates.

In other words, Mercedes doesn't look as though it intends to compete with Tesla with a large or otherwise long-range powerful electric motor car of its own.

Toyota: Just like Mercedes, Toyota also has an investment in Tesla. It started selling a limited series of 2,600 Tesla-based RAV4 electrics in September 2012, in California only. Other than that, the plug-in Prius has finally begun to sell in decent quantities.

But aside from a 2015 fuel cell car, what are Toyota's plans? Obviously, there will be a new plug-in Prius by 2015 or 2016, with only slightly more than 10 miles of EV range. Beyond that, nobody seems to have a clue. Anything is possible.

Honda: Just like Toyota, it has announced a 2015 fuel cell car. Honda has already delivered on the all-electric Fit, and the plug-in hybrid Accord. They are good cars but have not been selling well. It is unclear what Honda's intentions are.

Volvo: Volvo has been selling one of the most interesting electrified cars, in Europe only. It's a four-wheel-drive station wagon with a set of diesel and electric motors. Volvo intends to sell over 7,000 this year and 10,000 next year, after which it will be replaced by a gasoline-electric SUV for global consumption. Many people are demanding electrified 4x4 SUVs, so this could be a huge winner in the U.S. if Volvo only gets there before the competition.

Mitsubishi: Speaking of electrified SUVs, the only one currently in the market is made by Mitsubishi. Architecturally, its similar to the current diesel-electric Volvo, except its a gasoline SUV today -- what Volvo expects to be selling by 2015. The U.S. launch of this Mitsubishi has been delayed from 2014 to 2015.

Conclusion: Expect GM, BMW and Nissan to come the closest to competing with Tesla directly. But even in those cases, don't expect too many interesting models until we get closer to 2016-17.

Other manufacturers either emphasize fuel cell cars or simply believe that far milder forms of plug-in hybrid electrification will be sufficient to meet demand.

The die is cast with respect to the models we will be seeing by 2017-2018. After 2018, the decisions being made now, exiting 2013, will have an impact on new model plans for 2019 and beyond.

At the time of publication the author was long F and AAPL.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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