Tesla beats Mercedes and BMW but it’s still the underdog - February 28, 2018

Tesla beats Mercedes and BMW but it’s still the underdog

Tesla’s Model S outsold the luxury flagships of traditional brands like Audi, BMW and Mercedes-Benz in Europe for the first time ever. This happened in the US before, but not in the old continent. Classic brands must develop their technologies to fight back, and that may change the automotive industry forever. This doesn’t mean that Tesla can really compete with the big companies yet, though.

“Germany's premium brands are under pressure to accelerate their plans for electric cars after Tesla's Model S outsold the luxury flagships of Mercedes-Benz, BMW and Audi in Europe for the first time”, wrote Automotive News Europe in the middle of February. According to the journal this has happened in the US several times before, but German brands are losing ground in their home field now.

Tesla won in the luxury segment

As Automotive News Europe put it, “the Model S outstripped German premium brands' range-topping sedans including the Mercedes S class and BMW 7 series”. The journal also provided some data to back their findings: “sales of the Model S in Europe jumped 30 percent to 16,132 last year”, while “Mercedes S class sales grew 3 percent to 13,359. BMW 7 series had sales of 11,735, down 13 percent”.

In the US, Tesla outsold its competitors by more than 10 thousand units, almost selling double the number of cars in the highest segment. With Model X Tesla competes strongly in the SUV market as well, writes the journal based on data from JATO Dynamics.

The others are still a lot bigger

This is important news for the whole automotive industry, but Tesla is still a small fish on the market. First of all, the company faced losses in most quarters since its existence and their revenues are hard to compare to Daimler’s, BMW’s or Audi’s.

Revenues and profits of car companies

Click on the image to see it in full resolution

There are several reasons behind this, but one of the most important is that most car companies are huge holdings of several brands. Also, each brand has a great number of models, so even if Tesla can beat big brands in the premium category, it can’t compete with them in the segment of smaller cars. And these smaller and less expensive cars make the big revenue with the great number of their sales.

Markets change in favour of e-cars

Tesla may be an underdog in terms of revenue, but they are changing the market. According to Automotive News Europe, Jaguar, Audi will soon unveil their Model X competitors while Porsche has something up its sleeves against the Model S. BMW already has some electric cars (the i3 and the i8), while Mercedes-Benz plan to offer electric versions of all of its cars by 2022.“European automakers need to address the electrification faster because customers are showing more and more interest in such vehicles and it seems that the traditional industry "can't deliver on time," said JATO’s analyst about the changes we face.

Stock price changes in % of automotive companies

Click on the image to see it in full resolution

Tesla’s strength is also obvious if we look at the changes of their stock prices. In the last years, their prices doubled, while traditional companies had a slower growth. This fast growth cannot go on forever, but Tesla still has some tricks up its sleeve. Its more affordable Model 3 is hitting the market. Although the company have serious production capacity problems, people do want their cars badly and are willing to wait for them. The competition we see now in the premium segment may soon trickle down and become more serious with cheaper electric cars.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.