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Whilst this may explain some of the leap in Tesla’s sales, the fact that Tesla has
outperformed traditional automobile suppliers is still surprising. Not just because it is an
electric vehicle, but also because it does not have the extensive dealer network that
Mercedes, BMW and Audi have, or the decades of brand building and advertising, or
even the production capacity. Sales have also increased in the face of declining world
oil prices, which lowers the relative cost of petrol-powered vehicles. This shows that the
EV market is robust, because the choice to purchase a Tesla is currently more about taste
than being a substitute for petrol-powered cars. As the price of EVs drop, however, we
may see them becoming direct competition for conventional cars, further increasing
their demand. This will become evident with the release of the more affordable Tesla
model 3 and Chevrolet Bolt in 2017.

Whilst it may be dubbed the ‘first-mover’ in fully electric car production, Tesla is not the
only company in the EV market. Furthermore, it is actually not even the most popular.
The Tesla model S ranked third after the Renault Zoe and the Nissan Leaf, with the
Volkswagen e-Golf in fourth place. However, Tesla does own around 25% of the market
and is fast gaining a competitive advantage over the other manufacturers. There are a
number of reasons for this competitive edge:

1. Large investment into its own battery supply chain, making its batteries a good tier
cheaper than the other EV manufacturers. These batteries also have uses outside
of powering EVs and thus it expands the scope of profitability of the company and
opportunities for economies of scale. This underpins Tesla’s position as a sustainable
energy company rather than just a car manufacturer.
2. Investment in a super-charging infrastructure network, making charging EVs faster
and easier around the US – combatting one of the main limitations to owning an EV.
3. The software is also far superior to the competition with over the air updates (like we
get on our smartphones) and state of the art autopilot features.
4. Tesla has developed a reputation of superb customer service with integrity and
morality, which has created many brand loyalists.
5. Smart business model – Tesla has captured a niche market by selling low volumes
of the high value roadster. They then used the income from that to expand down
to slightly lower value and higher volume cars. The plan is to continue in this fashion
until they are able to manufacture a cheaper car to reach the masses.

Musk believes that the company could have a market cap equal to that of Apple’s in
10 years’ time, even though it currently stands at less than 4% of Apple’s $700 billion.
This would seem absurd if one considers Tesla an ordinary car company, but it is much
more tenable when one considers that cars are just part of the much larger technology
company that Tesla encapsulates. Tesla’s capacity is far more about the batteries that
go into the cars than the actual cars themselves. Many top executives of automobile
manufacturers are conceding that the majority of their competition is likely to come
from tech companies in the future as EV, batteries and autonomous cars become
commonplace. Rumour has it that Apple is in fact in the process of manufacturing the
first ’iCar’ to rival Tesla.

28 QUARTERLY ECONOMIC BULLETIN 2016