Navigant Research Blog

Betting Against Elon Musk

Dave Hurst — July 9, 2012

The excitement surrounding Tesla Motors has once again spiked.  The delivery of the production Model S’s (Model Esses? Models S?) has begun – a milestone that many thought questionable.  Telsa Motors has pushed many in the traditional automotive world to reconsider Tesla’s future, as evidenced by significant investments from Toyota and Daimler and the surprisingly buoyant stock price.  Tesla has the well-deserved spotlight, and is gaining momentum.

All this gives further bravado to the deservedly proud Tesla founder Elon Musk, who never shies away from the media’s microphone.  During the Model S delivery event on June 22, Musk proclaimed: “In 20 years more than half of new cars manufactured will be fully electric,” Musk said. “I feel actually quite safe in that bet. That’s a bet I will put money on. … It’s probably going to be in the 12- to 15-year time frame”.  Well, Mr. Musk, I’ll take that bet (though admittedly, my cash reserves will likely dictate a smaller bet than you might be thinking).

Our most recent report on plug-in electric vehicles (PEVs) has the market for battery electric vehicles growing at a very rapid pace (32% compound annual growth rate between this year and 2020).  This pace of growth is likely unsustainable as the market becomes increasingly mature, but let’s for the sake of argument assume that this remains unchanged through 2032 (20 years from now).  This would put the BEV market at about one-third (5.0 million) of the total market in 2032.  But 32% growth for 20 years?  That’s pretty unrealistic.

Let’s assume the average growth is still a strong 10% (what automaker wouldn’t love 10% growth every year for the next 20 years?).  At 10% growth, the market for BEVs would be about 574,000 vehicles in 2032.  However, our forecast for the growth rate between 2019 and 2020 is 8%, which would translate into 480,000 vehicles when extrapolated out to 2032.  Even if the current vehicle market has seen its peak and is now on a downward slide, a one to two million vehicle market by 2032?  This also seems unrealistic.

Annual BEV Light Duty Consumer Vehicle Sales Forecasts, United States: 2012-2032

(Source: Pike Research)

Finally, for purposes of comparison, hybrids have been sold in the U.S. since 1999.  The hybrid market share 12 years later (2011) is 2.1%, or 268,807 vehicles.  Granted hybrids and BEVs are different animals with different lifetime costs and limitations, but one would expect that if BEVs will reach 50% market share in the next 15 years, hybrids would at a minimum have broken the 5% mark (they haven’t).

What would it take for Musk to be correct?  I would speculate that the U.S. market would have to see the confluence of three forces sometime early next decade:  First, automakers will have to diversify their product offerings rapidly, particularly into pickup trucks (which are 14% of the total vehicle market) and SUVs (which are on the way), increasing the appeal of BEVs in middle America and smaller cities.  Second, we would likely have to see an oil shock that makes any gasoline fueled vehicles extremely expensive to operate (gas prices reaching perhaps $8 to $10/gallon in current dollars).  Finally, battery recharging will have to have less impact on consumers, including higher powered wireless charging, improved DC fast charge times, and even fuel cell range extenders (on their way in the next decade).

While clearly some of these market forces are coming and we are seeing wider proliferation of BEVs, I think it’s a safe bet that we won’t hit that 50% market share by 2032, let alone by the middle of the next decade.  But I would be very interested to get some more details on why he’s so optimistic (and hopefully it’s for reasons other than pandering to shareholders).

2 Responses to “Betting Against Elon Musk”

  1. rob says:

    His bet was about the number of vehicles manufactured (presumably worldwide), not sold in the US.

    The US is hardly equal to the wold market. For example, perhaps Hybrids haven’t breached the 5% mark in the US, but they are very common here in Japan.

    Financial analysis tends to assume constant growth percentage for a period of years, and then a tapering off – which is typical of normal products. I think that plug-in cars may turn out to be more disruptive, however. The current number sold is small enough to make it effectively zero for practical terms – so they may start having more like 1000% sales increase per year for a few years until they become common.

  2. Robert Pike, Homestead, Fl says:

    No consideration has been even mentioned about solar cell integration in to vehicles. I predict that as S.C.’s become more “hidden” (ie wire circuitry is blended in or masked) and more efficiency in circuitry (micro on the horizon) application (flexibility of units) and integration (sensor and switching circuitry) improves, we’ll see (or won’t see, but will know about) solar on the roofs, hoods and trunks of vehicles. I’d even go so far as to predict the innovation of wind turbines; either pop-up (with speed increase) or hidden (perhaps within wheel wells) to add to the battery refreshment.

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