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Does Tesla Technology Promise Long-term Victory Over Rivals?

Current Success Is Down To Marketing, Not Technology, Report Says.

“consumers are not doing any cost/benefit calculations – but rather just saying ‘I want one’”

Tesla’s success so far has been down to rich buyers making irrational choices, a report says, but its cost claims are forcing sceptics to wonder if long-term, the upstart Californian battery-only car maker might indeed have the inside track.

Max Warburton, analyst with Bernstein Research, said in the report that the key to Tesla’s long-term success is its apparent ability to produce lower cost batteries than anyone else. If Tesla’s claims are right, Warburton said he might well have to revise upwards his assumptions about the success of electric vehicles generally.

Warburton said Tesla’s success so far is down to its clever market positioning, rather than its differentiated technology.

“The genius of Tesla has been to position its product at the high end of the market – this has been more instrumental to its success than cost or technology,” Warburton said.

Mainstream electric vehicles like Nissan of Japan’s Leaf and Renault’s Zoe have stumbled because they need to be more utilitarian in the mass market. Inconsistent range and high prices, despite big government subsidies, mean sales in this sector have remained low.

Emotional buyers
“Tesla is selling cars to emotional buyers who are comparing the Tesla S to other emotional, irrational and expensive products – such as the Mercedes S class and Maserati. That’s the genius of the product – consumers are not doing any cost/benefit calculations – but rather just saying “I want one”,” Warburton said.

According to Warburton, Tesla’s batteries cost between $200 and $300 per kWh, compared with mainstream manufacturers around $500.

Warburton said his researches show Tesla doesn’t have a real technological edge, but might have one in costs. Some manufacturers simply refuse to believe Telsa’s costs claims, and they still aren’t close to matching these costs. Tesla’s big plans for battery making could capitalise on any advantage it has.

“If Tesla moves fast and builds its much discussed ‘gigafactory’ with capacity for 500,000 batteries or more a year, it could quickly pull away in the scale race,” Warburton said.

Last month Tesla’s already stratospheric share price zoomed again close to $260. A year ago it was around $35 a share. The shares were responding to investment bank Morgan Stanley’s view that sales of about 35,000 Model S cars this year might hit 700,000 assorted vehicles by 2025 and breach one million in 2028, double its previous forecast. Tesla also announced plans to invest $2 billion in a U.S. car battery plant costing between $5 billion and $6 billion that could supply lithium ion packs for 500,000 vehicles a year by 2020. The shares are currently close to $230.

Bernstein’s Warburton said Tesla’s decision to use thousands of laptop-like lithium-ion cells was different from mainstream manufacturers which use larger batteries, but the technology itself wasn’t really different.

Nobody matches Tesla costs
Warburton said if Tesla’s cost claims are valid, he might have to reconsider his views on the potential of electric vehicles generally. Warburton hasn’t actually found any manufacturers which can match Tesla’s costs.

“However, most manufacturers report that battery costs are falling fast and some believe that Tesla’s claimed cost levels may be possible by the end of the decade – subject to achieving massive production scale. It may be the case the EVs (electric vehicles) are going to be more competitive than we previously assumed – and will make up a much larger part of the fleet in future years,” Warburton said.

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