Tesla (NASDAQ:TSLA) stock has overcome many hurdles under CEO Elon Musk. The company scaled electric vehicle production and has a leading market share in the most competitive market, China. It has brought the price of its Model 3 below $40,000. It has become the most valuable car company in the history of the world.
But it’s one thing to achieve leadership. It’s quite another thing to maintain leadership. The whole industry is gunning for Tesla. It faces questions about quality and its direction. The most important question is this. When Americans decide we want a $25,000 electric car, will it be a Tesla? Or will it be something else?
The Mid-Market and TSLA Stock
While new Teslas are priced below the median gas-powered car in America, they’re not cheap. That’s because American cars keep getting bigger, more expensive, with more steel and more features.
This is true for electrics, too. The Rivian (NASDAQ:RIVN) R1T has a price that starts at $75,000. It can easily weigh 3 1/2 tons. The latest Tesla 3 weighs a little less than 2 tons.
America continues going through an automotive arms race. The average U.S. car is now nearly 15 feet long, and 6 feet wide. U.S. makers abandoned the small car market years ago. This delivers a big advantage to gas-powered cars.
There’s another advantage. Gas guzzlers are often lighter than mid-sized electrics.
There is an American EV listing at around $25,000, available now. That’s the General Motors (NYSE:GM) Chevy Bolt. GM is also a partner in the company making China’s most popular mini car, the $5,000 Hongguang Mini. The problem is that the mini is still in China and the Bolt isn’t selling. Chevy moved less than 19,000 Bolts in September and expects sales to slow.
Scaling a Small Car Market
The gravest threat to TSLA stock comes from China’s BYD (OTCMKTS:BYDDF).
BYD has a variety of models scaled to the mid-market (cars costing $30,000 and less). BYD can outproduce Tesla and has outdistanced it in China. It’s about to build its first plant in Europe and it’s just getting started.
Europeans now buy 300,000 EVs per month and that number is rising. Tesla has 13.7% of the market, but it trails Volkswagen (OTCMKTS:VWAGY) and Stellantis (NASDAQ:STLA), the parent of Chrysler.
The problem for GM, BYD, Volkswagen and every other small car maker is that the U.S. market is more like that of the 1950s than the 1980s. This gives gas some non-obvious advantages.
Safety may be the biggest. Electrics don’t carry big motors in the front and can be crushed in an accident. What might look like a small hit to the side can total an electric, since that’s where the batteries are. Think of what that does to insurance rates.
Tesla’s biggest advantage here is its network of Superchargers, now a U.S. standard. Tesla claims it can get a car from 20% charge to 80% in 15 minutes. That sounds great. But compare it to the number of gas stations there are, the time it takes to refill your tank, and what you might do with that time.
The Bottom Line on TSLA Stock
There’s a wall between the U.S. car market and that of the rest of the world. That wall is size.Tesla has cracked it open a bit, but only at the high end of the market. Tesla says it will soon build a car costing $27,000 in Germany, but has offered no specifics.
Meanwhile German and Chinese EVs have an advantage in a U.S. mid-market that barely exists. It will take $100/barrel oil to get most Americans to even consider a change.
Tesla stock will be in a good place if the company adapts.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his free Substack newsletter https://danafblankenhorn.substack.com/.