Tesla and the New Frontier in Electric Car Competition

NEW YORK (TheStreet) -- Tesla's (TSLA) primary claim to fame was -- and still is -- its vastly superior range for an all-electric car: up to 265 miles, depending on the model and level of charge.

All the other car makers are currently mostly in the 75- to 100-mile range for their all-electric cars. For longer-range cars, they use smaller batteries in combination with a gasoline (e.g., Chevrolet Volt or BMW i3) or diesel (e.g., Volvo V70 D6) generator.

The argument as to what's a better long-distance driving solution -- all-electric or range-extender -- will continue to rage for years. Reflective of this, both solutions will also likely thrive in the market for at least another five to eight years, at a minimum for cost reasons.

At some point between 2016 and 2019, however, multiple Tesla competitors will be delivering all-electric cars with ranges from 200 to 300 miles. Of course, you may say that by then Tesla will have moved the competitive needle to 300 to 400 miles.

Perhaps. But then again, perhaps Tesla's competitors will also have 300- to 400-mile, all-electric cars by 2019 or 2020. The precise number there is not important for this discussion, as you will see below.

Regardless of which company -- Tesla and/or its competitors -- will try to deliver large, luxurious, all-electric cars with well over 300 miles of range, those cars will be expensive and add a lot of weight. There simply comes a point when you need more heavy batteries to transport around the additional heavy batteries. Weight and cost become prohibitive, except perhaps in an electric Rolls-Royce.

You can increase the range from 250 miles to 300, or from 300 to 350 -- but that alone means very little for the road trip if the recharge time is long. You basically run into a metaphorical wall despite very high costs -- if the charging times are long.

My argument is this: Once we have hit a certain sweet-spot for range in terms of an electric car -- I argue that it is somewhere between 200 and 300 miles -- the competitive frontier for the automobile manufacturers will move from the range of the batteries in the car, to the charging network.

Imagine a world in which your electric car could get 150 miles of range in five minutes. Or even 10 minutes. If these charging stations were so readily available so as to not cause you to worry about finding them you would not need a bigger battery and it would be "game over" for traditional gasoline/diesel automobiles.

If you are a car company, investing more in a 200- to 300-mile electric car's battery -- even just to cost-reduce it -- will ultimately get you nowhere in terms of the competitive matrix. The competitive frontier will have moved from the car to the charging network.

Even in this 200- to 300-mile range electric car scenario -- today's Tesla -- the vast majority of people don't need any radically fast charging on most days. You charge at home overnight, at work during the day and perhaps at some public parking garage once a week. Seeing as you tend to drive fewer than 200 miles per day, that's all you need.

But we all know that the unexpected happens: emergencies, detours, change of plans or perhaps you simply forgot to charge on a few occasions. It's like insurance: You don't need it on most days -- perhaps even weeks or months. But you still need insurance for the outlier events.

In other words, even if it costs more to charge quickly, having the fast-charge option will be a strong competitive weapon. On most days you will charge for a very low price using slow-charging (240 or 110 volts, AC), but on the few moments you really need it on a road trip or in an emergency you'd be willing to pay a higher price for the electricity being fed at 440 volts DC.

Whether it's General Motors (GM), Ford (F), Nissan, Toyota (TM), BMW or Volkswagen -- just engineering that 200- to 300-mile all-EV direct Tesla competitor for launch in 2017, 2018, whatever isn't going to cut it. The car itself is only half the equation.

As a future electric car buyer, I may not ever make use of fast-charging. But if my choice is between a 200- to 300-mile Tesla, and a 200-to 300-mile EV from another auto maker with no decent fast-charging network, I will go with the Tesla every day -- all other things equal. Once other car companies have caught up on the all-electric range (200-300 miles at various price ranges), the speed of charging becomes the critical competitive differentiator.

If I were sitting in the C-suite of any of the major car companies, I would feel embarrassed today. Tiny Tesla with a number of engineers to the right of my decimal point is well underway in building out an electric car-charging network across multiple continents that can fuel a car over 150 miles in 20 minutes -- and it keeps getting even faster.

Yes, I know: All in all, the number of Tesla charging stations remains relatively small -- but it's growing fast, and has already become a crucial selling argument. If you think Tesla made headway in 2013 because of its charging network, you just wait until 2015 when the Model X ($90,000) enters production, and 2017 when the Model E ($40,000) does. The charging network will be gigantic by then -- literally as well as metaphorically.

One wonders what the MBA competitive analysts at the major car companies are doing all day long. What are the top executives thinking? The Tesla noose is tightening, even though it just started a year ago. In the car industry what seems like a very long four years in any other industry is in the panic category for car development. It takes four years to develop a car.

Tesla does not need 150,000 charging stations in the U.S., just like there are gasoline stations. Most people charge at home and at work on well over 90% of days. You only need these faster chargers to ensure that you can travel in the long, rural, freeway areas -- and perhaps somewhere in the metropolitan area where you can charge if you're in a panic and are willing to pay more.

Tesla will be at this coverage level in just a few short years, 2015. If the tipping point hasn't already happened by then, it will in 2015. It will be game over -- in Tesla's favor.

How much does all of this cost? Let's say that a Tesla charging station with 10 outlets on site costs a total of $2 million including real estate, construction, etc. Deploying 500 of these locations would be a nice round $1 billion. In the big scheme of automotive competitive investments and marketing spending, that's small potatoes. Tesla could probably raise enough capital to build over 1,000 by 2016.

I mean, even little Tesla will have completed this country-wide investment by 2015 or 2016.

Shouldn't the much larger car companies with far greater resources -- GM, Toyota and VW each sell around nine million cars per year -- feel terribly embarrassed by this? All of them are surely working on their own 200- to 300-mile, pure electric cars for mass production in the 2016-2019 range, but that may simply not be enough to compete effectively with Tesla.

In conclusion: It's not just about the car's range. Once we hit 200 to 300 miles for an all-electric car, it doesn't pay to build a longer-range electric car. It's far more important and efficient to build a fast-charging network instead -- not just 100 miles in 25 minutes, but 150 miles in 20 minutes and faster yet. Tesla is there and is doing it.

If the competition doesn't beat Tesla on this quick-charging metric soon, it will become Tesla's enduring and decisive competitive ace.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of The Street or its editorial staff.

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