Tesla Faces Tough Competition in EV Market

Article By : Maurizio Di Paolo Emilio

European auto makers, especially some of the German brands, now represent significant competition for Tesla...

Tesla’s momentum is getting stronger as shares surged to unprecedented levels. But is the market-cap hype really financially sustainable and how is the brand able to compete globally? Prominent business consultant Thomas Michael Hogg observes that European auto makers, especially some of the German brands, now represent significant competition for the Californian electric vehicle manufacturer.

In an interview with EE Times, Hogg highlighted the different aspects of the German businesses for the electric market and its competition with Tesla. Hogg, the author of “Profitable Growth Strategy: 7 proven best practices from German companies,” has collaborated on crafting business strategies with Daimler, along with other international brands such as Adidas, PepsiCo, and Johnson Controls.

“My job is to engage with business owners and CEOs in strategy planning and market studies. So, we have developed a methodology, and the advice in my new book offers results in the electric vehicle market,” said Hogg.

The electric car market is growing, and all the major automakers had a big year. “When we talk about the global market leader, Tesla produced and delivered about 500,000 vehicles last year,” said Hogg.

(The precise numbers from the Palo Alto, California-based Tesla were 509,737 vehicles produced and of 499,550 vehicles delivered in 2020.)

He continued, “what we’ve seen is that other automotive brands have also done very well. For example, Audi had an excellent year, especially in the last quarter, mainly because of its Audi e-tron model. So, there are a lot of German companies in different sectors that are withstanding the crisis better than their international counterparts.”

The Audi e-tron is the world’s best-selling electric vehicle from Germany’s premium manufacturers. In Norway, which is considered a pioneer country for electromobility, it is even the best-selling of all models. “A key country for electric cars is Norway, where more sales of electric cars were recorded in 2020. An interesting fact is that Audi has overtaken Tesla in Norway in terms of units of cars sold,” said Hogg.

Tesla and the European electric market
The electric vehicle market is becoming highly competitive. Tesla addresses a premium market. Tesla’s deliveries in 2020 highlighted the strong production capacity of Elon Musk’s company with a nice leap compared to 2019.

Thomas Hogg pointed out that, in addition to the brand itself, superfast charging stations, economies of scale for batteries, and software expertise are some reasons for Tesla’s competitive advantage. “A good move is building a mega-factory in the heart of the European automotive industry: Germany. Tesla says their Gigafactory in Berlin-Brandenburg will be the world’s most advanced high-volume electric vehicle manufacturing facility and where they will develop new batteries. In addition, the brand says their German manufacturing site will be an ideal work environment with modern and sustainable features,” said Hogg.

Tesla
Figure 1: Tesla model 3

The production of batteries, specialized units, as well as full production of the Tesla 3 model destined for the European market, and the Y model, a new compact SUV are all on the agenda.

What would seem to have made the difference in the choice of the German capital is the “human factor” that makes Berlin an attractive city for a multinational that invests in innovation. Tesla is an international company looking for highly skilled employees from around the world willing to relocate.

However, one interesting thing Hogg pointed out is that Tesla is lagging in its HR recruitment program due to different legislation between the U.S. and Germany and problems with the union. “What we’ve heard is that Tesla is having some problems hiring mostly engineers to work for them, even though they have a really incredible brand,” said Hogg. The main issues are the recruitment process, the possible work environment, and the risk of “being hired and fired” for employees.

He continued, “Tesla is solid when it comes to branding and marketing and Elon Musk is really very important for Tesla’s sales performance. When it comes to endorsement Elon Musk is supporting the brand, obviously, as CEO and as an owner but also as a role model for future innovation. The German model is more based on tradition, performance and quality.”

Germany and the auto market
Tesla is facing some key challenges in Germany. There are several reasons why the company will have to face a challenge in 2021 both in Germany and Europe. “Market acceptance is not the same in Switzerland, where Tesla has been enormously successful, as in Germany. Staff conditions and requirements, customer loyalty, and local competition are just some of the obstacles the American brand has to overcome.”

BMW and Audi became global brands due to their focus on quality. Hogg said Audi ended 2020 with the most successful quarter in its history for cars delivered: between October and December, the company delivered 505,583 cars to its customers — more than half a million in one quarter for the first time ever. This is thanks to a solid performance internationally and thanks to the Audi e-tron model’s success (including the Audi e-tron Sportback), which saw a significant increase in demand last year, up 80 percent.

Hogg pointed out that Audi is also solid in China, just as the other German brands. “Tesla is a really good quality car, but when we talk about Audi, Daimler, Porsche, and BMW we’re talking about performance and technology for decades, where Germans have demonstrated efficient progress and market penetration in many countries around the world,” said Hogg.

Hogg said that in 2020, the list of best-selling cars in Norway was led by VW subsidiary Audi with its E-Tron series electric models, which had 9,227 new registrations. The VW ID.3, which was only launched on the market in September, was almost on par with the Tesla Model 3 with 7,754 units, which was still sold more than twice as many times as the clear market leader in 2019. “Overall, the Tesla brand, which depended almost exclusively on this one model, fell back behind Volkswagen, Toyota, Audi, BMW and Volvo,” said Hogg.

Tesla
Figure 2: Audi e-tron

Other German electric car models have performed po well when it comes to market share in Germany. German consumer loyalty is also demonstrated in the electric market. Studies in the past have shown that Germans, in general, prefer to buy local, thus supporting home economy.

“The origin of products is a decisive factor for consumers. German car buyers attach importance to the fact that their car comes from or is at least produced in Germany. The preference for car production in Germany, particularly among buyers of premium vehicles was a strategic decision by Tesla,” said Hogg.

The strong pressure on CO2 limits set by the EU and the associated penalties are pushing the electric vehicle market. There was a huge increase in 2020, and it’s set to get even stronger in the coming years.

Hogg concluded the interview by stating that, although Tesla is very successful in some markets and on the stock market, it should not underestimate the power of the local German market, legal conditions, competitor responses, and employee needs. Elon Musk’s green creature is thus facing competition from Chinese electric cars and the German automotive industry, which is accelerating its conversion process towards electric.

 

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