Popular Tesla Draws Parallels To Prius' Hold On Its Segment

Investor's Business Daily

Is Tesla the new word for a hot luxury car? Is this electric car set to turn the Mercedes S550 and Porsche Panamera into Edsels, to dispose of the Aston Martin DBS like the damnable first several minutes of a Bond flick

Hold on to your horses, say auto analysts; it's still a niche. Tesla might more readily be thought of as kind of the luxury word for a Prius.

The $71,000-$91,000 Tesla Motors (TSLA) Model S sedan is surely a hot ticket in the greenest towns; often a couple zip by on the 405 freeway on the way to Santa Monica or Malibu, Calif.

Well-made internal combustion engine luxury vehicles remain popular, of course, though Tesla has made market share inroads as its stock has zoomed more than 300% higher this year.

Even as Tesla's success at building an electric car worthy of an array of best-car awards spurs interest in e-vehicles as maybe a viable driving option, it potentially daunts rivals who make EVs or hybrids.

"That staying power is hard to predict, how long it's going to last," said Jessica Caldwell, an analyst at Edmunds.com, the car site. "That may be a challenge for Tesla, being able to keep its cars the 'it' product.

When hybrids first made a splash, for so long "it was Prius is the only car — with all sorts of celebrities, Leonardo DiCaprio and whoever, driving this $20,000 car," she said. Now among hybrids and electrics you have "much sexier, sleeker cars" to choose from.

Yet, Toyota's (TM) Prius, with strong brand recognition, still dominates hybrid/electric sales.

While appealing to green-minded buyers, most hybrids/electrics cost more than their fuel savings are ever apt to repay in normal use.

In June, Caldwell says, the basic hybrid Prius hatchback with its distinctive look garnered 28% of U.S. hybrid/electric sales.

That excludes Tesla, as the California startup doesn't release sales data the way the major automakers do. In all, Caldwell says, four Prius models — including the electric plug-in hybrid — grabbed 41% of that market in June.

After that came the Toyota Camry at a distant 7.6% of the market and the Ford (F) Fusion at 6%, for a market with 50,995 total cars sold in the month.

Small Spark

The all-electric subset of Edmunds' data — the Nissan (NSANY) Leaf, Honda (HMC) Fit, Toyota RAV4, Mitsubishi i-MiEv and GM (GM) Chevy Spark — in June totaled 2,721 car sales, including 2,225 of the reduced-price Leaf now available on a lease.

"Basically, a decade ago it was either the Honda Insight or Toyota Prius," Caldwell said. "I don't think the Insight has ever been a big competitor. Prius had a huge percentage of the market, and today they still have a good percentage of the market, but it's slipping. It wasn't unusual for them to be 50% or more of the hybrid and EV market, but as more and more cars come out, it's been harder for them to maintain.

Jefferies analyst Elaine Kwei noted at the start of July that sales in the U.S. full-size luxury sedan segment, up 10.4% for the year through May, would have been up only 0.8% if not for Tesla's Model S.

She estimated Tesla has grabbed 9% market share in that category and expected the company to report having delivered 4,500 vehicles last quarter, for which it posts results after the close Wednesday.

Toyota's July sales summary released Thursday showed its all-hybrids Prius line to be its third best-selling brand for the first seven months of the year, with 143,508 sold vs. more than 242,000 of the Camry and more than 183,000 of the Corolla. (It sells a hybrid Camry and soon a hybrid Corolla.)That marked a scant 0.1% year-to-date increase for the Prius. But Toyota made a point to note that in July, Prius sales were up 40% vs. July 2012 — and that its hybrids accounted for more than 60% of all hybrid sales industrywide.

BMW Accelerates Competition

Tesla, whose CEO Elon Musk plans to build the Model X crossover SUV next and get into lower-priced vehicles, got a little competition last week in the electric segment from a luxury maker.

BMW introduced the i3 electric compact in New York, London and Beijing — at $42,350 here.

It also comes with some free use of a gas-powered BMW X5 SUV for when one desires a road trip. No one's saying that car will rival the high-performance sedan that Musk built. But with the original electric luxury rival Fisker Automotive, maker of the $100,000-plus Karma, still foundering, BMW's entry into the electric realm is duly noted. BMW has been looking at new technologies and has spent a lot of time with hydrogen.

"For us, the BMW i3 is just the first step in the revolution," BMW Chairman Norbert Reithofer said in a statement for a company conference call Thursday. "The next step comes in 2014. That's when our BMW i8 plug-in hybrid, with a three-cylinder petrol engine, reaches the market.

The i8 is expected to cost more than $120,000 and looks a whole lot more Batmobile than the i3, ergo a bigger rival to Tesla in the luxury segment, though at a higher price.

So where's Tesla in all this? To analyst Kwei, "if you're a tech enthusiast, an early adopter, it's become the future of automotive transportation.

It's the first car built from the ground up with new technology and is the most differentiated vehicle out there on the road, she said, synonymous "not only with luxury, but also technology.

The Silicon Valley pedigree reinforces that idea. Tesla is headquartered in Palo Alto, Calif., and builds its cars at a factory in nearby Fremont.

"The Model S is interesting people who say they'd never have spent that much money on a car or they weren't car people," Kwei said. "It's like the first time you use an iPhone after a BlackBerry, you feel like 'Wow, this is the future of the automobile.' That's how far a leap it is."

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