Tesla To Lose U.S. Market Share But Retain Lead Despite Formidable New Threats.
“Our forecasts suggest Tesla’s market share will decline from 70% in 2021 to 11% by 2025”
The headline forecasts for Tesla look bad but the reality is positive because despite the prediction its share of the U.S. electric car market will dive to just over 10% from 70%, the expected huge increase in electric car buying means its overall sales will carry on advancing.
Bank of America Merrill Lynch, in its latest annual “Car Wars” study, puts it this way.
“Tesla’s dominance in this still nascent market segment may be coming to an end, although it will remain an important player. Our forecasts suggest that Tesla’s market share will decline from 70% in 2021 to (an estimated) 11% by 2025,” the report said.
“While this market share direction is a bit daunting, it still means that Tesla is one of the largest (manufacturers) in the U.S. EV market,” the report said.
That might be worrying for Tesla shareholders in normal times, but the electric car market is building so quickly, even if it made extraordinary sales increases its overall market share would fall. Despite the increased competition, Tesla is expected to retain its pre-eminence, while eventually producing smaller, cheaper EVs for the mass market.
But the threat from China might make a big dent in some of these forecasts.
The massive, expected scale of the burgeoning EV market is shown by a recent report from global consultants AlixPartners. The market share of pure battery electric vehicles (BEV) in North America will zoom ahead to 28% by 2028 from 2021’s 3%, and on to 59% by 2035. In other words, electric cars will capture almost one-third of the market five years from now compared with a barely noticeable 3% last year.
But this pace is pedestrian compared with Europe’s. According to AlixPartners, in Europe BEVs already accounted for 8% of the market in 2021, will advance to 44% by 2028 and dwarf everything in 2035 with 83%.
Still retains leadership
Ed Kim, analyst with Long Beach, California-based consultancy AutoPacific, reckons EV’s will account for 11% of the overall U.S. market in 2025 and Tesla will take just over a fifth of that, and still retain leadership of the segment. Kim said there will be a deluge of new EVs that compete directly with Tesla arriving in the U.S. by the end of 2025.
“While EV market share will skyrocket from 3.3% in 2021 to an expected 11% in 2025, this growth is largely being powered by new entries in the marketplace from a variety of legacy and start-up automakers. General Motors, Ford Motor Company, Stellantis, Hyundai Motor Group, Volkswagen AG, and others all have very aggressive EV launch plans over the next few years, and that will eat into Tesla’s (market share) growth curve,” Kim said.
Stellantis brands include Peugeot, Citroen, Opel/Vauxhall, Fiat, Jeep, Lancia, Chrysler, DS and Alfa Romeo. VW brands include Audi, Porsche, Lamborghini, Bentley, SEAT and Skoda. Hyundai includes Kia.
“Still, that leaves Tesla with over 22% of the U.S. EV market in 2025, giving it a sizable lead over second-place GM with about 16% and third place Ford with about 14%,” Kim said.
According to the Bank of America Merrill Lynch report, the overall market for EVs in the U.S. in 2025 for traditional manufacturers will be led by GM, with just over 14%, and Ford with 10%.
“This is driven by two different strategies – for Ford, launching a few high-volume models like the F-150 Lightning, and for GM, launching numerous low to high-volume models across Cadillac and other brands. Other traditional manufacturers’ volumes will reach low-single digits,” the report said.
Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) in Duisberg, Germany, added a few Chinese names to the mounting competition for Tesla in the premium sector, and said CEO Elon Musk will eventually move into the mass market too.
“Musk’s clear strategy is to go into mass-markets,” Dudenhoeffer said.
One size fits all
Electric cars can compete across a large variety of segments because the basic engineering can be used much more widely than in internal combustion engine vehicles, he said. One-size fits all.
Dudenhoeffer said as well as all the big western names, BYD, Geely’s Volvo and Polestar, Great Wall, and SAIC’s Rowe and MG will join the EV market fray.
BYD, standing for “build your dreams”, has overtaken Tesla in the global sales race with 641,000 in the first half of 2022, ahead of Tesla’s 564,000. Warren Buffett’s Berkshire Hathaway owns about 8% of the company. Analysts expect Tesla sales to reach just under 1.4 million in all of 2022.
Dudenhoeffer said BYD is a leader in EV technology with its so-called “blade” battery which allows higher energy densities, and which is ahead of the Germans, and Tesla.
Fitch Solutions’ South Africa-based autos analyst Koketso Tsoai agrees Tesla’s competition is heating up but it should retain leadership of the EV sector. Tesla has a perceived quality weak-spot, which needs to improve. Tsaoi also expects Tesla to move down-market.
“By 2025 we expect a notable decline in Tesla’s market share in the U.S. as the EV market broadens its reach beyond California, to states that are not traditionally EV strongholds. In fact, it is quite possible that Tesla market share falls below 50% in U.S. EV sales by 2025 as automakers make drastic improvements through the introduction of more electrified models,” Tsoai said.
China Threat Looms
“Beyond that and leading up to 2030, we expect a vibrant EV market bustling with competition. In this period, Tesla will most likely remain dominant but an EV market share of over 40% will be tough to achieve. This will most likely lead the EV maker to tap into the large volume and affordable small EV segment. In addition, competition in the premium sector will be fierce for Tesla. Tesla will be vulnerable if build quality does not drastically improve,” Tsoai said.
According to CAR’s Dudenhoeffer, the threat from China is looming.
“The Chinese are increasingly making inroads into the global market and will bring important innovations to the market with electric cars and car software in the future. BYD shows what the Chinese can do and how the Chinese are gradually moving upwards in western car markets. The heart of the modern car, the electric car, is the battery and it is located in China,” Dudenhoeffer said.