This month, electric car maker Tesla joined the small but prestigious trillion-dollar club, companies with a market capitalization of more than $1 trillion. However, this assessment has no direct relation to Tesla’s usual activity in the vehicle market. In the first nine months of this year, Tesla sold 1.293 million cars. In the same period, Volkswagen sold 6.5 million cars, but its market value was $46 billion. BYD, which delivered 2.75 million electric vehicles during the period, has a market cap of $109 billion.
The jump in Tesla’s market value mainly reflects investors’ expectations of a direct or indirect profit for the company from its co-founder and CEO Elon Musk’s investment in Donald Trump’s winning presidential campaign in the United States.
Politics aside, in order to gauge what the future holds for Tesla in the global auto market, examining its performance in Israel is a good place to start.
Decreasing market share
The Israeli car market may be small by global standards, but in many ways it is an important test market for Tesla, since it is an import market, freely open to electric cars from anywhere in the world, without any regulatory discrimination or political or national preferences. Part of customers.
This differs from the situation in the United States, which today places significant trade barriers in the way of foreign electric vehicle manufacturers, especially Chinese manufacturers. It is also different from the situation in China and Korea, where customers avoid foreign-made cars; It differs from the situation in the European Union, which this month imposed high customs duties on electric cars imported from China, with the exception of the Tesla Model 3, which is made in China, but was treated with silk gloves.
Tesla has an advantage in Israel, as the only manufacturer with direct marketing, excluding dealer lineages, but it still has to compete against more than two dozen car brands imported from around the world, including several Chinese brands that it competes with. Directly on the positioning of their models and on the price.
In light of this competition, Tesla’s sales performance is far from what was expected from the most famous brand in the world. In 2021, when Tesla broke into the Israeli market, it captured a market share of more than 60% of the country’s electric car sector. A year later, its market share fell to 23%, although this was partly due to a microchip shortage that hurt global production and led to a very limited allocation of vehicles to Israel, and a sharp rise in prices, which hurt deliveries. In 2023, the company made a somewhat comeback in sales, but its market share fell to 14%, after falling prices.
From January to October this year, Tesla accounted for only 10% of sales in the Israeli electric car market, despite an unprecedented price cut in early July, which returned the prices of its flagship models to where they were two years ago.
Tesla’s low market share in Israel can be attributed to several reasons, one of which is the company’s limited supply. Tesla has to contend with the glass ceiling faced by manufacturers trying to expand into more popular and expensive market segments, but also with the glass floor, i.e. the lack of more popular and affordable models in its range.
The company currently has two main model series, both with veteran origins in the automotive industry. It’s true that the company knows how to squeeze the lemon of current models admirably, with a slew of software updates and tech upgrades, and that the Tesla Y is the best-selling electric car of its kind in the world. But in the cheaper and more expensive market segments, the company suffers from competitive inferiority compared to Chinese electric cars that compete in Israel in the price range of NIS 130,000 to NIS 180,000.
What happened to the cheap model?
This gap was supposed to be filled by Tesla’s “$25,000 model,” the launch of which has been postponed time after time. The last date for the launch of the compact and cheap car is 2025, but at an investor conference in October, no specific date was set for it, and Reuters recently quoted Elon Musk as saying that launching a cheap, non-autonomous model would be “meaningless.”
Meanwhile, the Chinese, Koreans and Europeans are invading mass and cheap market segments, launching Tesla knock-offs and planting flags in high-end segments where the veteran Tesla Models X and Tesla Y barely have a presence.
The price-cutting weapon that a company frequently uses in order to maintain or increase its market share seems to be steadily losing its effectiveness. Proof of this is the speed with which Chinese models have come in line with, and even undermined, Tesla’s lower prices this year.
It is not yet clear how Tesla will respond to the purchase tax increase that will take effect in January. In the past, it has raised prices by the full amount of any tax increase, then lowered them later. If it can absorb the tax increase, which is highly doubtful that it will, it could benefit from a competitive advantage, albeit a short-lived one, in January.
Besides the objective limitations, derived from the parent company’s product policy, Tesla Israel still suffers from the “thin and distant” management strategy. In the fleet sector, for example, which has strategic market importance, especially for electric cars, Tesla’s presence is negligible. This sector in Israel is dominated by a handful of major players who have long-standing relationships with veteran car marketers. Some of them (Avis, Shlomo Sixt, and others) are directly owned by “traditional” car importers who import electric cars.
Tesla Israel recently opened a new sales and logistics base in central Israel, but with more than 25,000 cars on Israel’s roads, it is still struggling to match the level of service offered by veteran importers. To this can be added the lack of stability among the company’s employees – the National Service Director was recently replaced after only one year in the position – and perhaps remote management by Tesla’s European headquarters in Amsterdam. Will Tesla reach single-digit market share in Israel? Or will we perhaps see strategic moves that enable him to return? Currently, the company has begun offering free shipping to customers for a year, which is certainly a hard sell, and indicates that the company is coming into line with the ways of the vehicle industry.
Published by Globes, Israel Business News – en.globes.co.il – on November 19, 2024.
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