Tesla Has Surrendered Its Key Competitive Advantage

Summary:

• Tesla, Inc. has opened up its network and charging standards for other automakers to use, initially to Ford Motor Company and General Motors Company, but likely to all others in due course.
• Tesla’s charging network had already been open to all other automakers in Europe for some time.
• Tesla’s EV market share in Europe is also materially lower than in the U.S. Is the open network a material contributor to this? We can’t say for sure.
• In the U.S., Tesla’s network was widely perceived by the consumer to be its dominant advantage in the U.S. market.  Now, that is gone.
• For the U.S. consumer of this persuasion, there is, therefore, no longer any reason to stick to Tesla despite any other misgivings with the brand (quality, service, etc.).

In the last month, Tesla (NASDAQ:TSLA) has cut deals with both Ford and General Motors that seem similar, based on the information they made available: Ford and GM get access to a part of Tesla’s charging network, and starting in 2025 they will also start to include the same charging standard that Tesla has been using since the introduction of the Model S in 2012.

Before the Model S, Tesla had been using a proprietary connector in the Roadster (2008-2012). Most of the rest of the automotive industry had previously rallied to make almost all of their new electric vehicles (EVs) conform to other standards for AC and DC charging connectors. Plug-in hybrid EVs, or PHEVs, typically used the J-1772 standard, and battery-electric vehicles (BEVs) typically used the CCS standard, which basically adds DC support in addition to the AC functionality of the J-1772.

U.S. Investors, Take Note: This Already Happened In Europe

It is not as if the connector itself presents a physical hurdle from using one network versus another, because of adapters. Tesla cars can charge at J-1772 and CCS stations, and non-Tesla cars can charge at Tesla chargers, as long as the software allows it. For those of you who have not seen how this works outside the 50 states, here in Europe you will find that Tesla chargers filled with non-Tesla EVs is a common sight these days.

For that reason — this already being the compatibility in Europe for every non-Tesla EV, not only Ford and GM — the big attention that these GM and Ford announcements received in the U.S. in the last month is, therefore, puzzling. Tesla’s network in Europe has already been open to all EVs for some time.

The fact that Tesla’s charging network no longer constitutes an advantage for Tesla in Europe may also explain why Tesla’s market share in Europe is significantly lower than it is in the U.S. In April 2023, Tesla had a mere 12.6% EV unit market share in Europe, a tiny fraction of the huge market share it enjoys in the U.S. market.

Just Like Apple Switching To USB-C

You can think of Ford and GM switching from one connector to the other as similar to what would happen if Apple Inc. (AAPL) switched its proprietary connectors to USB-C, which was used on devices powered by Alphabet Inc. (GOOG) operating systems. Actually, that’s what Apple did in recent years on its laptops and tablets. Only the phones remain on Apple’s proprietary connector. Do you think that this switch was a big deal for Apple or its competitors for the laptops or the tablets? (iPad) Will it be a big deal if and when Apple makes a similar switch for the iPhone? Of course not. Apple surrendering to the charging connector standard used by Alphabet will not confer any benefit to Alphabet.

Interoperability Good For EVs In General

The fact that the automakers and charging networks are now making “standards peace” among each other is clearly good for all things EVs, as far as the consumer is concerned — cars and networks alike. While many EV owners charge at home or at the office for most or all of their charging needs, having a network available for longer trips or when you forget to charge at home or at the office, is clearly an integral part of the practical proposition of purchasing an EV.

Based on that layer of the argument alone, both Tesla and all other automakers will therefore benefit from these agreements to make cars more easily compatible with the Tesla charging network. I am assuming that all other automakers will follow in Ford’s and GM’s footsteps and make their systems compatible with Tesla’s connector as well.

From The U.S. Consumer’s Standpoint, However…

In the U.S. market, unlike in Europe, the consumer perception was clear: one of the main reasons to buy a Tesla over any other BEV was the ease of using Tesla’s own charging network. Tesla had some of the best sites for charging, and it has the best uptime reliability in the eyes of the consumer. I have not seen anyone dispute this.

One could even make the argument that this was the dominant reason to buy a Tesla. Unlike in 2012-2016, when Tesla was the only car with over 250 miles of range and a bunch of other positive characteristics, the market changed after 2016. In 2023, it is now flooded with the longest list of attractive BEVs with decent range and a diverse range of body styles. This competitive landscape also continues to grow ever-intense for every month that goes by, with no end in sight for many years to come.

Yet, as the argument described above goes, people still bought Teslas in the U.S. market mainly because of the consumer perception that it had the best charging network. I believe this perception was true, and that it indeed was the (dominant) reason to buy a Tesla as opposed to, say, an Audi, BMW, Hyundai, Ford, etc., electric car.

Now Tesla officially surrenders this consumer advantage, starting with the Ford and GM agreements. While this makes EVs more attractive to own overall, it dramatically shifts the consumer calculation inside the EV competitive field. If you didn’t like Tesla cars because of some other reason — say, poor quality or poor service — then you no longer have any other dominant reason to consider buying a Tesla anyway. Instead, go ahead and buy that Kia, Genesis, Volvo, Polestar, Mercedes, Lexus, Cadillac, whatever.

Yes, I know — the announcements to date are specific to Ford and GM, but I think we all know that there is no reason to believe that all other automakers won’t take Tesla up on its offer to open up its network, just like Tesla did in Europe already — to all automakers. So, Ford and GM today, and the other automakers in due course, over the next couple of years.

Investment Conclusion: A Major Net Negative For Tesla

It will never be possible to measure the impact of Tesla giving up its main advantage as perceived by the U.S. consumer. There are simply too many other factors that will change. As a result, we have to look at this logically, and you all fellow investors have to rely on anecdotes from your real and would-be Tesla-buying friends. Would they be more or less likely to buy a Tesla if the network was not an issue?

My contention is simple, and I think it ought to be an obvious one: with the U.S. consumer — first with Ford and GM, but eventually with all automakers — no longer having to consider network availability as a purchasing factor, they are now “free” to more seriously consider buying not only a Ford or GM brand, but soon also many other EV brands, probably all of them. This will be good for Ford, GM, Mercedes, BMW, Volkswagen, Audi, Porsche, Volvo, Polestar, Kia, Hyundai, Genesis and all the other automakers. But, therefore, also a net negative for Tesla and its BEV market share in the coming years.

---

Analyst’s Disclosure: I/we have a beneficial short position in the shares of TSLA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

---