Too many carmakers are aiming to take on Tesla

It's easy to get distracted from Tesla greatest achievement.

Elon Musk's upstart automaker builds, fast, sexy electric cars that are prized by the Silicon Valley elite.

They're the ultimate rolling status toys, $100,000-plus rides that can, in some configurations, outrun Ferraris and Lamborghinis.

That's all wonderful, but Tesla's most meaningful "disruption" of the century-old auto industry is more prosaic: it created a market that really didn't exist before.

True, General Motors and other companies had developed and sold electric cars. But they never sold in significant numbers. And even in the post-financial-crisis period, with more electric vehicles rolling off assembly lines than ever before, EV only constitute about 1% of the entire global market for automobiles.

They haven't made a dent.

But Tesla is growing rapidly, roughly doubling its deliveries each year (around 50,000 in 2015, close to 100,000 in 2016, and half a million by 2018, if the company executes on Musk's ambitions). There are nearly 400,000 pre-orders, at $1,000 apiece, for the Model 3 mass-market vehicle, scheduled to launch late next year. That's an unprecedented number in the industry.

Does it mean that there's vast, untapped demand for electric cars? I don't think so. Rather, I think it means that there's vast, untapped demand for Teslas.

Chasing the wrong future

Tesla has made history by creating a notable market that didn't exist before. But it's far from clear whether that market will grow to include vehicles that aren't Teslas. An early test will be the new Chevy Bolt, a $30,000 EV, after tax incentives, with a range of about 240 miles on a single charge; the car went into production in October. If its sales quickly match Tesla's, we'll have a solid indication that what consumers want are relatively inexpensive EVs. If they don't, we'll have confirmation that consumers ultimately just want Teslas.

In any case, unless growth picks up in the EV space, automakers are going to have a difficult time making their electric-car programs work. Many major automakers are offering grand electric-mobility plans. Volkswagen, for instance, is trying to recover from its emission-cheating scandal by resetting itself as a big-time provider of future electric vehicles.

As we head into the heart of the auto-show season, we're seeing numerous new electric-car concepts. Electric freight trucks are now being much-discussed. No one wants to get left behind.

Unfortunately, the current EV market simply isn't large enough to support all these vehicles. It might be possible for automakers to do what GM is proposing with the Bolt and its Lyft investment: create a fleet of self-driving electric taxis. But this isn't really a conventional play for consumers. Individual auto ownership is the core of the car business, and it's that market that needs to expand if EVs are going to begin the process of taking market share away from gas-powered cars.

The story is changing

Another factor pressing on the future success - or failure - of the EV market is a relatively recent, unforeseen, and rapid change in the big transportation story of the moment. From the mid-2000s until the emergence of Uber, the action was with electric cars.

But the narrative now is about ride-hailing, car-sharing, and self-driving cars - technologies that don't require electric cars, and that can be brought online with internal-combustion vehicles much more quickly. It doesn't make sense for companies working in the new narrative to wait around for the EV market to grow. They can stake their claims more fully with the next generations of gas-powered cars - the 99% of the market that doesn't have to be recharged every night.

This might sound bad, and it is worth taking into account that Tesla is both the most successful all-electric-car company and a leader in autonomous mobility. But no one should be surprised that electric cars could lose out - again. Batteries are large, costly, and less practical than gas - and their development has been painfully slow. The current spate of lithium-ion designs are vastly superior to anything that came before. But it's taken over 100 years for EVs to simply catch up to gas-powered cars.

This is actually a good situation for Tesla. Musk and his team have, effectively, a monopoly. But that isn't what Musk wants. His vision is for a steady replacement of gas-powered cars by EVs.

That clearly isn't going to happen if the self-driving/de-ownership trend really takes hold. Small, cheap gas-powered vehicles, outfitted with advanced software, will be much easier to build at mass scale than EVs. Tesla is aware of this, and that's why it's constructing a massive battery factory in Nevada, to bring down the cost of lithium-ion battery cells.

Day of reckoning

A reckoning is probably coming for all the automakers that are now following Tesla. Many see EVs as a way to meet future government fuel-economy and emissions standards. In order for these "compliance" vehicles to serve their function, people need to buy them. But if all those people really just want to buy Teslas, then the automakers will sour on misdirecting their resources into products that lack appeal to customers.

From my perspective, the current EV market looks stalled. If it were going to take off, it would have by now - consumers would have decided that even a 100-mile-range electric car was a good deal. These vehicles have been in the market for years and haven't meaningfully displaced gas-powered cars. Low fuel prices have had something to do with this - gas-electric hybrid sales have also been weak - but the obvious conclusion is that consumers are as excited about EVs as manufacturers thought they would be. Consumers might even be indifferent.

As a result, carmakers seem to be hopeful about the electric-car future, rather than practical. They're assuming that their new EVs will be "Tesla killers." But if the growth of the EV market doesn't radically accelerate, the fight won't be worth it; Tesla will dominate a small market niche, and the dozen of traditional automakers will be left to battle for the tiny leftover percentages.

Meanwhile, consumers will flock to automakers that can provide the best self-driving tech.

So the industry is at a critical inflection point. And it could be Tesla's destiny to be the greatest electric-car company of all time. As well as the only electric- car company of any significance.

The opinions expressed in this article are those of the author.