EV Makers Are Gaining Ground On Tesla As Chinese Rivals Loom

Tesla
TSLA
sales forecasts may look bad, but the future is positive.

Though the electric carmaker’s share of the U.S. market is predicted to plummet in the next 4 years, sales will advance as huge numbers of drivers are expected to buy electric cars.

“Tesla’s dominance in this still nascent market segment may be coming to an end, although it will remain an important player,” Bank of America
BAC
Merrill Lynch said in its latest annual “Car Wars” study. “Our forecasts suggest that Tesla’s market share will decline from 70% in 2021 to (an estimated) 11% by 2025.”

“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, but the electric car market is building so quickly, even if Tesla increased sales extraordinarily, its overall market share would fall because the market is growing even faster. Despite the increased competition, Tesla is expected to retain its pre-eminence by eventually producing smaller, cheaper EVs for the mass market.

But competition from China might make a big dent in some of these forecasts.

A recent report from global consultants AlixPartners shows the expected scale of the burgeoning EV market. The market share of pure battery electric vehicles (BEV) in North America will zoom to 28% by 2028 from only 3% in 2021. By 2035 it will reach 59%. In other words, electric cars will capture almost one-third of the market five years from now.

But this pace is pedestrian compared with Europe’s, where BEVs already account for 8% of the market in 2021, according to AlixPartners, and will advance to 44% by 2028 and 83% in 2035.

Ed Kim, analyst with 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, while retaining leadership of the segment.

“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
GM
, Ford Motor
F
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 growth curve.”

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%.

“Ford’s strategy to gain EV market share will rest on a few high-volume models like the F-150 Lightning,” the Bank of America Merrill Lynch report said. GM’s approach will depend on “launching numerous low to high-volume models across Cadillac and other brands.” Other traditional manufacturers will only reach low-single digits,” the report said.

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 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 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.

“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.

Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Duisberg, Germany, added a few Chinese names to the mounting competition for Tesla in the premium sector. He said BYD, Geely’s Volvo and Polestar, Great Wall, and SAIC’s Rowe and MG will join the EV market fray. And Dudenhoeffer said that Tesla CEO Elon Musk will eventually shift his own strategy.

“Musk’s clear strategy is to go into mass-markets,” Dudenhoeffer said.

Electric cars can compete across many segments because the basic engineering can be used more widely than in internal combustion engine vehicles, he said.

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
BRK.B
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.

According to 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.