Demand for Electric Vehicles Wildly Underestimated

Dear Friends & Shareholders,

Little by little, the “Tesla hunters” get themselves into position and launch their first purely battery-powered vehicles. Jaguar started last year with the I-PACE. According to media reports, there were 25,000 orders for the battery-powered SUV – significantly more than the company had expected. The car manufacturer itself reported – literally – long delivery times.

Mercedes gets a little more concrete. Regarding the battery-electric EQC SUV, the just-retired Daimler CEO, Dieter Zetsche, said even before the car was available for order: “We are certain that we will not be able to satisfy demand in 2019 and probably not even in 2020.”

The biggest danger for Tesla, however, comes from the VW group. The largest car manufacturer in the world is attacking the electric car pioneer from California on several levels. Audi, a VW subsidiary, launched the battery-electric e-tron SUV to the market a few weeks ago. The car competes with the premium Tesla S and Tesla X models. There were 20,000 advance orders for the e-tron. Against this background, management is considering increasing production in Brussels, where the car is manufactured, from 20 to 24 units per hour in the coming year. This would increase the annual output from 70,000 to 84,000 vehicles. That would be a similar number of cars as Tesla produces from its somewhat outdated top models.

In addition, a second VW subsidiary will soon be chasing Tesla: the sports car manufacturer Porsche. There are already 20,000 potential buyers for its battery-powered top model, the Taycan, despite the car not even being on display in the showrooms. The contingent for the USA is already sold out for one year. The US boss of Porsche, Klaus Zellmer, speaks of an enormous demand. As early as January, Porsche announced that it had to increase the production capacity of the Taycan from 20,000 to 40,000 units.

The excess demand described above is also interesting because these are very expensive cars. The EQC from Mercedes starts at a good 70,000€ ($80,000), the base-model e-tron is around 10,000€ more. The Jaguar I-PACE is also in this price segment. The entry-level model of the Porsche Taycan costs around 100,000€. Nevertheless, the demand is about twice as high as the supply.

Game Changer ID.3

But the real business is likely to be in the mid-range car segment. This is where the VW group is advancing with the ID.3. The special edition ID.3 1ST comes at a price of 40,000€. Half of the first contingent of 30,000 vehicles was sold after just one week. Later, an entry-level model for just under 30,000€ will follow. This means that the ID.3 in Germany is no more expensive than a VW Golf powered by a diesel engine after deduction of the 4,000€ tax credit for the purchase of an electric car. In contrast, the electric car of the compact class is likely to be even cheaper in ongoing operation.

Even the name ID.3 is a clear indication of who VW wants to attack with its electric mid-range car: the Model 3 from Tesla. The VW group is thus directly competing with Tesla in all car classes.

Cost Parity in Sight

Competition is becoming tougher not only for Tesla but for all vehicles with diesel and combustion engines as cost parity of electric cars and vehicles with conventional drive systems is getting closer and closer. In 2017, analysts at BloombergNEF reckoned that from 2026 electric cars will no longer be more expensive than conventionally powered vehicles. Last year, they estimated that competitive price equality will be achieved as early as 2024. In their latest calculation, the Bloomberg analysts came to the conclusion that as early as 2022 electric cars are no more expensive than diesel or combustion engines. I personally expect the cost parity from next year on.