Just today, we reported on a Bloomberg piece claiming that BMW was the most vulnerable brand to Tesla’s current rise in customer popularity. To be honest, there seemed to be real concern for BMW, as it’s been losing 3 Series sales quite a bit in the past couple of years, as Tesla Model 3 sales have been rising. It also seemed as if BMW is the brand most customers are leaving to switch to a Tesla. However, this new piece from Business Insider actually argues the contrary.
According to BI, BMW has nothing to fear from Silicon Valley. Sure, Tesla Model 3 sales are up but there are a myriad of reasons why that means almost nothing for BMW. For starters, Model 3 sales aren’t really eating into 3 Series sales for the simple fact that Model 3 customers aren’t really cross shopping it. They want something electric and they want the Model 3. While 3 Series figures are down, that actually has more to do with BMW’s own cars, such as the X3 and X5, cannibalizing 3 Series sales.
There’s also the fact that Tesla just isn’t a profitable company. In fact, I’m not sure it’s gained any profit since it’s started. Investors and early adopters have shouldered the cost of Tesla’s business out of optimism that it will eventually be profitable. However, it’s yet to prove it can be a profitable company. All the while, BMW is one of the most profitable automakers in the world and consistently so, year after year.
On top of that, Tesla has had to cut prices on the Model 3 to get more customers into it. Simultaneously, Model S and Model X sales are down quite drastically, which means the brand can’t make up the lost profit from Model 3 price cuts on higher-profit models.
To tilt things further in BMW’s favor, the Bavarians have a massive portfolio, which cars in each and every possible segment. So if one model starts to slow down, it has several others to pick up the slack. Not to mention the fact that BMW has its own electric models coming in the future.
Now, some might argue that Tesla is ahead of the rest of the industry, in terms of battery and electric technology and maybe that’s true. However, the better Tesla does and the more popular EVs get, the better off the rest of the industry is. “All boats rise”, according to Business Insider.
And that’s true. As EVs become more popular and more profitable, mainstream automakers will be able to take advantage of the market quicker and more effectively than Tesla. Car companies like BMW, GM, Mercedes-Benz, Audi and Volkswagen all have resources, manufacturing capabilities and supply chains that dwarf Tesla’s operation. So once the market is there for those brands to profit on EVs, they can squash Tesla.
Now, maybe Tesla hangs in there. The Model 3 is a very good car and the automotive industry is better for it. But it’s now hard to see Tesla really frightening any other mainstream successful automaker until it sorts its business practices and profit margins out. At first glance, it really does seem like Tesla is bringing the house down on top of the rest of the industry. But on closer inspection, it might mostly be vaporware.
[Source: Business Insider]
