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Tesla's real battle in Europe begins in 2020

Jill Petzinger
·Germany Correspondent, Yahoo Finance UK
NEW YORK, NEW YORK - APRIL 25: Tesla cars are delivered to a  showroom in Brooklyn on April 25, 2019 in New York City. The electric car company announced on Wednesday that it lost $702 million last quarter. Tesla revenue was also down 37% compared to the prior quarter.  (Photo by Spencer Platt/Getty Images)
Tesla cars are delivered to a showroom in New York City. Credit: Spencer Platt/Getty Images

While most carmakers bemoaned a lacklustre first half of 2019 in Europe, Tesla (TSLA) celebrated a stellar six months.

Europe’s e-car market may be small — about 2% of the whole automotive market— but within that space, Elon Musk’s company seized 28% market share in the last six months. It shifted 45,000 new cars, with the big winner being the smaller, cheaper Model 3. The Model 3 only launched in the EU in February and has already sold over 37,000 and become the best-selling e-car.

So far, so impressive, but the company has no time to rest on its laurels, because the e-car wars have not really begun. From next year onwards, Tesla will face off with the continent’s biggest carmakers—mostly the Germans—who are ramping up to launch scores of hybrid and fully-electric options.

READ MORE: European new car sales back on a downward slide

The Volkswagen Group has already told investors that they aim to deliver around 300,000 battery-electric vehicles across the Group in Europe region next year. “This gives some indication how 2020 will play out in Europe,” automotive analyst Matthias Schmidt told Yahoo Finance UK.

“Tesla essentially has been playing to an open goal in Europe as most OEMs are just offering EVs at a trickle rate at present, as they are hoping to push demand back to 2020 when they need to reduce their fleet average CO2 emissions to meet tough regulation in Europe,” Schmidt said.

Schmidt is referring to the strict new EU rules that will be phased in from next year onwards, limiting CO2 emissions from cars to no more than 95 grams per kilometre. Exceed that and they can expect a fine of €95 per extra gram over the limit. Car bosses are rightfully worried about getting their fleets compliant in time—and introducing more low-to-no emissions models is one way of lowering overall CO2.

READ MORE: One of Tesla's biggest investors unveils how it just hit a major milestone for cars

Their mad rush to bring out more electric models clearly gives Tesla some real competition in terms of production capacity. The California-based company’s Fremont plant can produce about 90,000 vehicles per quarter. It is currently building a factory in Shanghai in China, and still to announce where it will construct one in Europe. For comparison, the likes of BMW and Daimler send millions of cars a year off the lines.

“From 2020 onward, Tesla's dominating position in the battery electric vehicle market will begin to evaporate,” says Schmidt. “The relatively small pool Tesla is currently swimming in is about to moderately expand in size and more and more fish will be swimming next to Tesla all competing for the same space.”

The choice challenge

Photo: Getty
Photo: Getty

The amount of variety and choice for consumers looking to go electric is set to increase dramatically too. The Volkswagen Group, which is investing $50bn (£41.1bn) into global electrification and retooling 16 plants to build electric vehicles, is aiming to produce 33 different electric models across its VW, Audi, Skoda, and Seat brands by 2023. VW’s ID e-car line will make its debut next year.

In the premium segment, Porsche will soon be breathing down Tesla’s neck with its electric Taycan, set to debut next month and already has an order book of 30,000 down payments.

And on it goes: BMW brought forward its electric offensive by two years, and now plans to launch 25 electrified models by 2023, more than half of those pure electric.

Daimler boss Ola Källenius said in a company interview: “All systems are go. We are investing more than $10bn in the development of our EQ vehicle portfolio alone."

"By 2022 we will be bringing more than ten different all-electric vehicles to market,” Källenius added. “We will also be electrifying the entire Mercedes‑Benz portfolio and our customers will have the choice of at least one electric alternative in every Mercedes‑Benz model series, taking the total to 50 overall."

“It will still be a long time yet until a company like Tesla is in the position to offer a broad far reaching spectrum of differing model variants to a globalized world that clings on to regional preferences,“ said Schmidt, noting that “2020 will prove to be a great stress test for Tesla.”

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