Download now: Cannabis Cash

Tesla Copycat Illustrates Tough Competition in the EV Industry

Written by Meg Dailey
Posted April 1, 2017

Just one year ago, I waited at my computer watching a livestream out of California with bated breath. Lights flashed. Elon Musk came on stage and said...

"Do you want to see the car? Well, we don't have it for you tonight..."

Once disappointment settled in, he assured us that he was kidding, of course!

It was a clever April Fool’s joke, one that poked fun at his company’s own past failings. Tesla is well known for its missed deadlines and disappearing prototypes, but this time it delivered.

To much fanfare and cheering, three Model 3 cars were driven onto the stage.

Earlier that day, another editor, Jeff Siegel, had said how excited he was to be a part of history as he headed down to the nearest Tesla dealership to pre-order his car in person. Sitting at my desk that night setting up my own pre-order, I felt the same way.

A lot has changed in a year, though.

Today, we’re watching the story of another company play itself out, and its development illustrates just how precarious a position Tesla is really in...

Mirror Image

Faraday Future is another familiar name, as it’s one of Tesla’s more hyped-up competitors.

It was started in April of 2014 and immediately began touting its upcoming car, even going so far as to create emotionally evocative videos to advertise just how great this car would be. The company’s first all-electric vehicle was meant to compete directly with the already popular, high-class Tesla Model S.

That was the first mistake.

By the time Faraday Future got into the game, Tesla had already moved on from focusing on expensive sports cars to designing mass-market EVs.

Yet Faraday persisted.

After failing to create a prototype in time for its first appearance at the Consumer Electronics Show (CES), the company began planning to build factories in both California and Nevada, riding on the coattails of Tesla’s success.

Thus far, that hasn’t worked out quite so well...

Despite finally having a car to show at CES earlier this year, Faraday still does not have a product up for sale.

That’s because neither of its factories have come to fruition, either.

Early last year, the company broke ground on its $1 billion factory just outside Las Vegas. By November, the project had been put on hold. Just a few days ago, the company announced that it was scrapping the California plant as well.

We already knew Faraday was having major money issues when its Chinese backer, a tech company called LeEco, “blindly sped ahead” into new investments that lost it far more cash than it could afford. This is mainly why the Nevada factory has stalled indefinitely.

Weirdly enough, this sounds like something Tesla did, too.

Just last year, the larger EV company bought out SolarCity in an acquisition that was vilified by media and investors alike. But rather than suddenly being plunged into crippling debt, Tesla seems to be carrying on just fine.

Moreover, it’s recently gained its own major Chinese backer: notable tech giant and owner of the WeChat mobile app Tencent Holdings. As of this week, it now owns around 5% of Tesla Inc., an investment that amounts to $1.78 billion.

Even with all of this foolhardy success, Tesla’s still not in the clear yet.

Where’s the Cash?

Later this year, we will either see a fleet of Model 3 cars driving across the West Coast, or we’ll see Tesla take the final plunge back into obscurity.

Because no matter how popular it is, Tesla is in the same boat as Faraday.

If Tesla falters now with the Model 3, it’s all over...

Well, for its own cars, anyway.

See, it’s only gotten this far by tapping into and indeed creating more demand for electric vehicles all over the world. And now that the demand is there, it’s not going away.

If it turns out Tesla can’t hack it, someone else will pick up the torch.

That someone is likely to be one of the world’s biggest carmakers, like Ford, Volkswagen, Toyota, or General Motors. All have begun designing and marketing their own EVs to compete with demand for the Model 3.

Despite all it’s accomplished already, Tesla still has to prove itself to the market. Meanwhile, global demand for EVs is climbing all the time, especially in smog-ridden China, now the single largest market for electric cars.

IEA EV SalesSource: IEA Global EV Outlook

According to the International Energy Agency, EV sales already reached the symbolic milestone of over 1 million cars on the road (1.26 million as of 2015), with both plug-in hybrids and battery electric vehicles gaining market share in individual transportation.

Today, it's still a novelty to see a Tesla driving on the road. Within the next few years, its sleek designs may be only one of many EVs people drive every day.

Time Crunch

As with any fast-growing investment, the potential here won’t last forever.

Last week I explained where we’ll be getting the supplies of two essential metals, lithium and cobalt, as demand for both takes off. EVs are just one facet of the evolving lithium battery market; we're going to be short on supply until we can get more online.

Of course, it's going to be a while before production catches up...

Which means right now, while we’re still in the catch-up phase, is the time to be looking for the most valuable stocks in both commodities.

Until next time,

Megan Dailey
Energy and Capital

Hydrogen Fuel Cells: The Downfall of Tesla?