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Tesla Faces Heavy Competition In Booming EV Market

After years of sheer dominance, signs are now emerging that the most popular EV name could be losing its sway on the markets. Morgan Stanley has just reported that Tesla Inc.'s (NASDAQ:TSLA) share of the U.S. EV market slipped to 69% in February from 81% a year ago.

A potential red flag—Tesla is mainly losing market share to deep-pocketed ICE incumbents.

According to Morgan Stanley, Ford Motor Co.'s (NYSE:F) Mustang Mach-E accounted for nearly 100% of the share loss.

Ford's iconic battery electric vehicle (BEV) has won the praise of numerous leading automotive publications, and its strong initial sales suggest that traditional automakers might finally have figured how to go toe-to-toe with the EV kingpin.

Meanwhile, a teardown of Volkswagen AG's (OTCPK:VLKAF) first dedicated electric vehicle, ID.3, has found that it measures up favorably to Tesla's models, with UBS declaring it as "the most credible challenger to Tesla yet". Volkswagen is the world's No. 2 automaker.

The revelation comes in the middle of a major correction in the EV sector.

Over the last four weeks, the sell-off has hit nearly all leading EV names with Tesla down 30%. But Tesla’s slide appears tame in comparison to Workhorse Group (NASDAQ:WKHS) -62%, XPeng (NYSE:XPEV) -41%, Nikola (NASDAQ:NKLA) -39%, Electrameccanica (NASDAQ:SOLO)-38%, Nio (NYSE:NIO) -34%, Canoo (NASDAQ:GOEV) -32%, Kandi Technologies (NASDAQ:KNDI) -30%, and Hyliion Holdings (NYSE:HYLN) -21%. Related: Oil Soars As OPEC+ Sources Suggest No Production Increase

Total market cap loss in the EV space now stands at an astonishing $730B since the peak a month ago.

Heavy competition

Tesla only reports global sales on a quarterly basis and not monthly, as do many other automakers. However, Morgan Stanley has estimated that the EV maker recorded a 5.4% sales growth in February. That's quite pedestrian by Tesla's standards and looks particularly worrying when you consider that EV sales in the United States rose by a much faster 34% clip during the month.

New EV offerings by traditional automakers more than doubled to 9,527 vehicles sold In February, with Ford's Mach-E, which won SUV of the year honors this year, accounting for 3,739 units. That's impressive, bearing in mind it only started shipping in January. Even more impressive is the fact that 70% of the Mach-E buyers were new Ford customers, making the car that much more valuable to the automaker. 

Tesla is facing increasingly stiff competition for its luxury Model S sedan and Model X SUV from traditional automakers such as BMW, Audi, Jaguar, and Porsche, along with competition from Volkswagen, Nissan, Chevrolet, Hyundai, Kia, and now Ford for its lower-priced Model 3 sedan and Model Y SUV. Model 3 and Model Y accounted for ~90% of Tesla's sales during the fourth quarter.

But Tesla's biggest worry will be the fact it's losing the battle for dominance in the all-important European market.

Volkswagen dominating Europe

Tesla has fallen behind Volkswagen in EV sales in many European markets, including Norway, where EVs account for the majority of new vehicle sales.

Last year, Tesla sold 98,000 vehicles in Europe, a drop from the 109,000 units it moved a year prior. In contrast, 2020 was a banner year for EV sellers in the continent, with nearly 1.4 million plug-in passenger cars sold, a 137% jump. As a result, Tesla fell to third place in the European EV market after its market share slipped from 31% to 13.4%. Related: Russia’s Gazprom Boasts First Carbon-Neutral LNG Delivery In Europe

Volkswagen will be looking to cement its lead with the new ID.3. UBS' deep dive into the ID.3 concluded that the platform underpinning VW's EV models is set to be fully cost-competitive with Tesla and also boast best-in-class energy density and efficiency. The ID.3 is mainly targeted at the European market, with VW planning to flank the car with a crossover sibling, the ID.4, to be produced in China and the U.S., in addition to Germany. 

Tesla also has to contend with new competition from yet another piston heavyweight: General Motors (NYSE:GM), which has just debuted the Bolt EUV, a compact SUV version of the Chevrolet Bolt. The Bolt EUV is slated to go on sale by early summer, and will be priced below the Model 3 and Model Y.

These are early numbers, though, and investors will have to wait for a few quarters to get a good picture of how Tesla is coping with the growing competition in the EV space, especially in Europe.

Massive buying opportunity

Despite the heavy selloff in the EV sector, a section of Wall Street is saying that the EV party is just getting started, and to use this as a buying opportunity.

According to Wedbush Securities' Dan Ives

"Our answer is emphatically that the EV party and transformation is just beginning as this industry is on the cusp of a $5 trillion market opportunity over the next decade. With GM, Ford, and now Volvo (OTCPK:VOLAF) all jumping into the deep end of the pool on EVs it speaks to the massive pent up demand globally around EV technology on the horizon."

Ives says that the ongoing green tidal wave is likely to take EV penetration from 3% today to 10% by 2025.

By Alex Kimani for Oilprice.com

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