Navigant Research Blog

Tesla’s Affordable EV Finally Sees the Light of Day

— April 1, 2016

EV RefuelingWho would have thought that a small, roofless, two-seat, self-propelled machine could inspire a revolution in the way humans move about? Strangely enough, it has happened twice now, first in 1886 when Karl Benz drove his Patent-Motorwagen for the first time, and again at the dawn of the 21st century when AC Propulsion founder Tom Gage built the tzero. In each case, the revolution wasn’t instant. It took 22 years before Henry Ford’s Model T moved the car from wealthy early adopters to the masses—the electric vehicle (EV) will need a similar timeframe to make a real dent in the marketplace. Tesla Motors hopes its freshly revealed Model 3 will be the Model T for a new century, but will it succeed?

Founded in 2003 after Martin Eberhard and Elon Musk drove the tzero but failed to convince Gage to put it in production, Tesla had a plan to change the world with electrons. The Tesla Roadster used a Lotus chassis as the starting point for an electric sports car inspired by the tzero. Tesla steadily increased its volume and revenue to fund subsequent more practical and affordable models. Despite failing to meet its self-imposed deadlines, the company has largely stuck to the plan, going from Roadster to Model S to Model X.

Increasing Production

Having successfully increased production by more than an order of magnitude from the Roadster to the Model S, Tesla now hopes to repeat that trend with the Model 3. To that end, the new model is priced starting at just $35,000 before tax incentives, which brings the brand into an entirely different marketplace. Where the Model S and X take on high-end models from Audi, BMW, and Mercedes-Benz, the Model 3 is priced almost directly opposite the Chevrolet Bolt, a 200-mile EV to be priced at about $37,000 when it goes on sale in late 2016.

Tesla Model 3

Tesla Model 3 Unveil

(Source: Tesla Motors)

Unfortunately, while Tesla was the first to market with battery EVs that could easily exceed 200 miles on a charge, this time around, Chevrolet has a head start of at least a year. When I first interviewed Martin Eberhard in 2007, the goal was to have an affordable mass-market EV in the 2012-13 timeframe. As Tesla now knows, building cars is a lot harder than building software, and the Model 3 is scheduled for a late 2017 launch. A base Model 3 may cost as little as $25,000 after federal and state tax credits. However, at its current sales pace, any further delay means that Tesla is likely to hit 200,000 total sales by mid-2018, triggering a phaseout of the federal incentives and raising the net price.

A Tougher Marketplace

In addition to the challenge presented by the Bolt, with gas prices under $2 per gallon, the Model 3 also faces a much tougher marketplace for fuel-efficient cars. New EVs must attract customers on their own performance, design, and reliability merits. Tesla has proven it can compete on the first two, but reliability remains an open question, especially as production volumes climb. Finally, there is the question of profitability, something Tesla has failed to achieve to this point. Without highly profitable gas-fueled trucks and SUVs, Tesla is at a disadvantage.

As we approach the 20-year mark from the birth of the tzero, Navigant Research’s Electric Vehicles Market Forecasts report projects sales of nearly 2.9 million plug-in vehicles globally by 2024. The zero emissions revolution is almost upon us—Tesla has certainly worked hard to bring the transformation to the world, but whether the timing works in favor of the Model 3 or the Bolt to be the new Model T remains to be seen.


Powerwall Takes Tesla Into the Energy Cloud

— May 8, 2015

Elon Musk has announced that Tesla’s Powerwall, the company’s residential energy storage product, is already oversubscribed—38,000 residential systems have been reserved. The company’s PowerPack offering has an even more impressive backlog: 2500 reservations averaging an estimated 10 Powerpacks at 100 kWh, representing 7.1% of the Gigafactory’s planned capacity. Executing these orders will carry the company into 2016. In total, the reservations amount to between 2.9 GWh and 3.6 GWh. While this is an impressive feat, Tesla’s contribution to the market will not be based on technology—at least not at the battery cell level. Although the company’s battery pack offers benefits that integrators may not receive from products from LG Chem, NEC, Saft, or Samsung SDI, Tesla’s effect on the market is likely to reach far beyond hardware deployments.

Specifically, that influence will come in building economies of scale, popularizing the home storage concept with the general public, and, ultimately, developing viable financing schemes. Tesla’s move will also certainly spawn imitators in the residential space, encouraging competition and differentiation in the marketplace. Tesla can bring its sales and installation machine to bear in a portion of the market plagued by fuzzy margins, fickle business cases, and inconsistent interconnection fees. In a similar fashion, SolarCity and its peers can change the residential PV market simply by deciding to establish a market offer in a particular territory.

The Full Ecosystem

The broader play for Tesla is not to sell battery hardware into the residential market. Rather, Tesla has an opportunity to use the Powerwall as an anchor for a Tesla home energy ecosystem. The company is transforming itself into an energy provider, but not in the traditional sense. Interested in reducing your energy bills? Join the Tesla family. Purchase a vehicle, solar PV, electric vehicle charging, battery storage, and perhaps even energy-related services. Customers are buying into a platform, the same way that Mac users bought into the Apple ecosystem.

In 3 to 5 years, once market penetration nears saturation in early-adopter markets, Tesla could parlay these assets into a virtual power plant (VPP), bidding into deregulated markets or even selling directly to vertically integrated utilities. In order to expand its VPP market share, Tesla may decide to license the software and controls—the brains of the system—to other firms so that even competitors’ units can opt into a VPP in the future.

What does this mean? It signals that Tesla Energy is the newest player in the Energy Cloud.


2018: When EVs Will Change Everything

— February 11, 2015

Disruptive technologies don’t appear overnight. They come in gradual iterations until refinements and related technologies evolve to a point when they become so overwhelmingly useful that they are viewed as a necessary replacement for what came before.

While plug-in electric vehicles (PEVs) have come a long way since their introduction in the 1990s, they are not viewed by the general public as must-haves today, due to their higher prices and driving range limitations.  However, the next generation of PEVs, due to arrive in 3 years, will likely have a combination of features and prices that will convince most car buyers that driving a car with an internal combustion engine is a habit worth breaking.

Compare the development of PEVs to that of the smartphone. GM’s EV1 was the first significant PEV available in the 1990s, and its limitations in driving range and overall comfort prevented it and other PEVs of that era from catching on with consumers.

The evolution of smartphones can also be traced back to the early 1990s, when handheld personal digital assistants included an operating system with personal productivity features, and the first mobile phones that enabled talking (almost) anywhere became available. While these innovations quickly became popular with geeks and aficionados, they didn’t exactly capture a mass market.

10 Years After

Flash forward to 2009, and along came the Nissan LEAF and Chevrolet Volt, which took advantage of advances in battery technology, electric drive, display screens, navigation, and faster wireless communications to provide a driving experience that in most respects is superior to your father’s gas car. Most people have at least heard of a PEV by now, though PEV sales in the United States in 2014 were still less than 1% of all new light duty vehicles.

It similarly took more than a decade for personal digital assistants and mobile phones to converge, and for the then rudimentary technologies to be enhanced with better display screens and wireless connectivity, and new applications including texting, navigation, data sharing, and voice commands. For smart phones, the Blackberry, Windows smart phones, and then the iPhone became must-have devices that initially came with a high premium, but within a few years other manufacturers prompted competition that put this combination of features within reach of most consumers.

Tipping Point

That hasn’t happened yet with PEVs. But by 2018 we’ll have the Tesla Model 3 and the Chevrolet Bolt, which will package new technologies and driving enhancements to further separate PEVs from the pack. Anticipation for the Model 3’s extended range and Model S-like performance has been building since it was first announced, in 2013. The Chevrolet Bolt concept, which was announced at the International Consumer Electronics Show (CES) in January 2015, promises similar or better range for a lower price.

GM has said that owners will be able to start the Bolt with a smartphone application, and that ride-sharing and self-parking features will be included with the vehicles. Some of these features may be available in conventional cars by that time, but with the Bolt (and likely other PEVs), you’ll get them all under one roof for around $30,000, along with  superior electric drive performance and the savings and convenience of driving on electricity.

As with Apple and Samsung in the mobile device sector, Tesla and GM aspire to be the agents of change, and for now we can only guess at the electric alternatives that Nissan, Ford, Volkswagen/Audi, BMW, and Daimler will have at dealerships in 2018. Like smartphones, PEVs have certainly had their shares of missteps in their march toward ubiquity, but as Albert Einstein said, “Failure is success in progress.”


Tesla Breaks into Japan

— September 25, 2014

Last week Tesla opened its Japan sales operation with Elon Musk handing over nine keys to the first Model S owners in the country.  The event is significant because foreign automakers, especially U.S. ones, sell very few vehicles in Japan.  Although the country’s vehicle market officially opened to limited foreign participation in the 1970s, despite extensive automotive trade negotiations between the United States and Japan, the country has effectively remained closed.  Nearly 96% of all vehicle sales in the country come from Japanese companies, while the remaining 4% come from German automakers, with a barely visible blip of around 1,000 vehicles coming from GM.  This has been frustrating for foreign automakers – but it’s also hindering Japan’s plug-in electric vehicle (PEV) market.

As of 2013, Japan is the third-largest vehicle market and the second-largest PEV market in the world.  PEV sales were initially strong, thanks to infrastructure developments and vehicle deployments by Nissan, Mitsubishi, and, to a lesser extent, Toyota.  However, Toyota and Honda have since scrapped most of their PEV development programs, and no new PEVs were introduced in 2014, until Tesla did so last week.  To provide some context, there have been 24 different PEV models sold in Norway in 2014, while only 7 (including Tesla and three variations of the Mitsubishi i-MiEV) have sold in Japan.

Flat through ‘14

As a result, despite significant growth in every other PEV market, PEV sales in Japan will likely remain flat in 2014, at around 30,000 units.  This means that the country’s market will fall to third behind China; it may also lose ground to Germany, France, Norway, and the Netherlands, winding up in seventh in 2014.  Given Japan’s significant foreign energy dependence issues (Japan essentially imports 100% of its oil), this is a problem.

PEVs have substantial energy efficiency improvements over conventional vehicle platforms that, if adopted en masse, could do a lot to reduce Japan’s dependency issues.  Additionally, the country’s subsidy program, large vehicle market, significant price differential between electricity and gasoline on a per mile basis, and well-developed public charging infrastructure present the optimum conditions for the PEV market.  Unfortunately, Japan’s traditionally isolationist national automotive policy is inhibiting its own national energy security and greenhouse gas (GHG) reduction goals.


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