Biggest problem for Tesla is increased competition

(December 28, 2010) SANTA MONICA, Calif. — has been following the developments at Tesla and offers the following insights to explain why Tesla stock took a big hit on Monday now that its post-IPO "lock-up period" is over.

"The biggest problem facing Tesla is that every automaker is now seriously looking into electric vehicles on some level, and this provides competition from far more established and far better funded organizations," commented Senior Analyst Karl Brauer.

"Tesla's partnership with Toyota suggests a possible place for them within the emerging electric car market, but the company could also be simply overwhelmed — and overspent — by the bigger players, making Tesla irrelevant in a relatively short timeframe."

General Motors' Chevy Volt isn't fully electric but shows how much GM has invested in the technology, while the Nissan Leaf, Mitsubishi iMIEV and the upcoming Ford Focus Electric are other examples of major competition.

"Despite all the product entries and consumer curiosity, electric cars are still going to be a small segment of the market for a long time. Generating any significant return on investment is going to be a long-term waiting game for every automaker involved, and that is especially true for the small ones. Tesla is not a volume company — its cars are for a limited market segment," noted Senior Analyst Michelle Krebs. analysts expect hybrid electric cars, plug-in hybrid electric cars and battery electric cars accounted for less than 2.5 percent of all vehicles sold in 2010 and will remain well under five percent of the new car market for at least the next three years.

"Tesla reported that it had received 3,000 reservations for the Model S by the end of the third quarter of this year, and that it had sold more than 1,400 Roadsters to date with a total of more than eight million miles driven," commented Edmunds' Contributor Scott Doggett, who provides more details on the filing at his blog.

"The upcoming Model S sedan is being designed to accommodate rapid battery swaps, is expected to obtain a 5-star crash rating and will feature more cargo room than any other sedan. These are attributes of likely interest, but not nearly enough to propel the brand into the garages of most homes."