October 31, 2013 Companies: BIT:F/FIATY, ETR:BMW, ETR:NSU, ETR:PAH3/POAHY, F, GM, TSLA, TYO:7201/NSANY,

TYO:7203/TM, TYO:7211/MMTOF

Tesla Stands Alone in Luxury EV Niche

INITIAL REPORT Chris Jenks, cj@blueshiftideas.com

Summary of Findings Tesla Motors Inc.’s (TSLA) Model S still has no direct competition; it

stands alone in its class of luxury electric vehicles (EVs).

The 15 sources who discussed Tesla’s sales said the company has met or exceeded its goals, and not one of our 28 sources criticized Tesla’s current performance in sales and order fulfillment.

The infamous video of a Model S catching fire has had no lasting repercussions on Tesla. Sources said, if anything, the incident has reinforced Tesla’s claims of its strong safety features.

Although not a sales driver, Tesla’s three-year buyback program does boost consumer confidence and helps to close deals. A few sources compared the program to a lease but sweetened with tax incentives that come with ownership.

Nissan Motor Co. Ltd.’s (TYO:7201/NSANY) Leaf, which is smaller and lower-priced than Tesla’s Model S, was the only other EV noted as truly succeeding in the market. Many hybrid and lower-end electric vehicles are in development, but few are expected to compete head-to-head with Tesla’s Model S or upcoming Model X SUV. Two sources said General Motors Co.’s (GM) luxury Cadillac ELR may offer some competitive pressure.

Tesla’s Performance

Tesla vs. Competition

Tesla in the Wake of the Model S Fire

Tesla Dealerships

Tesla Supply Chain

Non-Tesla Dealerships and Manufacturers

EV Industry Specialists

Research Question:

Will high-end electric or hybrid vehicles from BMW, Audi and Porsche pop Tesla’s bubble?

Silo Summaries 1) TESLA DEALERSHIPS These seven sources reported no impediments in meeting or exceeding current sales goals and no direct EV competition for Tesla’s Model S. All have taken part in the Model S buyback program, often describing it as a lease program sweetened with the tax incentives of ownership but not a significant sales driver. The video of a Model S catching on fire has not been a hindrance; if anything, the incident has driven home Tesla’s high safety standards. 2) TESLA SUPPLY CHAIN These four sources were positive on Tesla, and three reported solid volume growth year to year in their Tesla supply sales. Three also expressed enthusiasm for their involvement in Tesla’s Model X SUV, due out in 2014. Tesla lacks a direct competitor. The video of the fire has created no fallout for the company, but two sources said slight changes to batteries and storage may occur. No source supports Tesla’s battery swapping program. Rather, three said Tesla should focus its efforts on creating more charging stations, particularly in the Northeast. 3) NON-TESLA DEALERSHIPS AND MANUFACTURERS These seven sources agreed that Tesla is alone in its class as a luxury EV. Sources representing competing dealers that sell gas cars and hybrids but not yet EVs were predictably less positive on all-electric driving, dubbing EVs as “commuter cars.” No source expects Tesla’s battery swapping program to work, nor did any say that the company had been hurt by the Model S fires. 4) EV INDUSTRY SPECIALISTS Nine of 10 sources addressed Tesla’s performance, and all nine agreed its sales will remain strong in the near term. However, four voiced longer-term concerns; two worried about Tesla’s ability to scale production, one was skeptical about the Model E’s launch at a more modest price, and one was concerned with bureaucracy involved in selling cars from dealerships. The Model S lacks direct competition but could feel pressure from the Cadillac ELR in the future. Two said Tesla’s competition also may build as it moves down market, especially with its Model E. All sources who commented on battery swapping expressed reservations, but no source reported any ill effect from the Model S fires.

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Tesla Motors Inc.

Background Tesla has predicted a 25% increase in third-quarter revenue based on immense demand for its cars, and has discussed supply constraints in meeting this demand. To guarantee sustained value of the Model S and to gain more revenue from its low supply, Tesla initiated a buyback program through which it will purchase preowned Model S units for 50% of the purchase price. This program is estimated to gross $368 million by 2016. Electric vehicle (EV) adoption is becoming more widespread, as evidenced by a 50% sales increase year to year. The adoption rate will continue to rise as cheaper lithium-ion batteries result in lower EV prices, competition from a wide range of manufacturers floods the market, and more states like Vermont install electric charging stations. Tesla also is establishing charging stations throughout the country. Tesla has been unopposed in the high-end luxury EV market—until now. Entering the market are BMW AG (ETR:BMW) with its i3 and i8, Audi AG (ETR:NSU) with its A3 hatchback, and Porsche Automobil Holding SE’s (ETR:PAH3/POAHY) $845,000 hybrid 918 Spyder. These car giants have advantages over Tesla through their established consumer base and their manufacturing capabilities. CURRENT RESEARCH In this initial report, Blueshift Research assessed how high-end competition affects Tesla, now and going forward. We employed our pattern mining approach to establish five independent silos, comprising 28 primary sources and seven relevant secondary sources focused on Tesla and other electric or hybrid vehicles:

1) Tesla dealerships (7) 2) Tesla supply chain (4) 3) Non-Tesla dealerships and manufacturers (7) 4) EV industry specialists (10) 5) Secondary sources (7)

Next Steps Blueshift Research will monitor Tesla’s sales and trends for 2014, including the manufacturing and rollout of its Model X SUV. We also will track developments in competitors’ hybrid and electric vehicles.

Silos 1) TESLA DEALERSHIPS These seven sources reported no impediments in meeting or exceeding current sales goals and no direct EV competition for Tesla’s Model S. All have taken part in the Model S buyback program, often describing it as a lease program sweetened with the tax incentives of ownership but not a significant sales driver. The video of a Model S catching on fire has not been a hindrance; if anything, the incident has driven home Tesla’s high safety standards. KEY SILO FINDINGS Sales Trends

- 3 sources who commented said they will meet or exceed sales goals. No source reported a shortfall. Competition

- All 7 sources assert that Tesla’s Model S is alone in its class as a luxury EV.

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Tesla Motors Inc.

- 3 sources pointed to conventional models as competition for Tesla’s Model S, specifically Mercedes-Benz (Daimler AG/ETR:DAI/DDAIF) E and S class, BMW 5 and 7 series and the Audi A6, A7 and A8.

Buyback Program - All 7 sources said some buyers use this method of financing, though no source said the program was driving sales. - A few compared the program to a lease but with the tax incentives of ownership.

Video of Model S on Fire - None of the 7 sources reported any negative fallout from the fire. - Several noted that a conventional gas-powered car likely would have fared much worse in a similar incident.

1. Tesla store manager and Tesla product specialist in the mid-Atlantic

These two sources said Tesla corporate would like to see the EV market grow and is working with other car manufacturers to develop more electric and hybrid cars. Still, Tesla is the industry leader and will be for some time. Audi, Porsche, BMW, Mercedes-Benz and Toyota Motors Corp. (TYOP:7203/TM) all offer hybrid or electric cars but appeal to a different market than the Model S. Tesla will make its goal of meeting orders for 21,000 cars this year. The buyback program is not a sales driver, but may be enough to give buyers the confidence to commit to a purchase. The fire video had minimal, short-lived effect, and Tesla is proud of the way the car performed under the circumstances. The driver in the video already is in a new Tesla.

Sales Trends “I cannot give out sales information, but our earnings report will be out in

November. … I can tell you we are exceeding our expectations at this location.”

“Supply has been difficult for some areas, but we have been able to meet every sale in our market.”

“Our goal companywide was 21,000 orders this year, and we are going to meet it.”

Competition “I do not believe we have any direct competitors out there. We are an all-

electric, high-performance sedan. There are others in the class that are hybrids and others that are all-electric, but not in this class.”

“The [Audi] A7 and RS7 and the [Porsche] Panamera or the BMW Gran Coupe might appeal to the same customers.”

“Toyota has several electrics. And Mercedes is working with us on electric technology for their models, like the SLS, but it is a different class.”

“We hope to see more electrics on the roads, but I expect Tesla will lead the pack for some time to come.” “The [Audi] Q5 and the [BMW] i8, even the Porsche 918 Spyder are all great ideas, but they are not in our niche.” Buyback Program “[The buyback program] is 50% of the base price and 43% of the options. We have had a really complicated

application process, but that is better recently. It has saved a few sales here.” “The program has really helped some buyers feel confident enough in the residual value to commit.” “It should make used models more available over time and broaden availability to buyers because [the used cars]

will be less expensive than the new cars.” “I really do not think Tesla owners will cash in on the deal. We are not calling them at 36 months to say, ‘Hey, you

want us to buy back your car?’ I think most of them will just keep paying on it and keep driving it.” Video of Model S on Fire “We just talk over the facts of the day. The car had two batteries, and it was in a collision. The car told the driver to

pull over and exit the vehicle, which he had time to get off the highway and get onto a side street, pull over and get out, before the fire erupted. And the fire did not enter the cabin of the vehicle. We are really pretty proud that our car fared so well under the circumstances. That guy is driving a new Tesla already.”

“Generally, the shopper looking at our cars is pretty knowledgeable about technology, and they know that the same situation in a car with a tank full of highly volatile fuel would have fared much worse.”

I do not believe we have any direct competitors out there. We are an all-electric, high-performance sedan. There are others in the class that are hybrids and others that are all-electric, but not in this class.

Manager & Product Specialist Tesla Store, Mid-Atlantic

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Tesla Motors Inc.

2. Tesla product specialist in the Northwest

Tesla’s Model S has the highest safety rating of any car, not just electric cars, and it remains the only all-electric, high-performance luxury sedan available on the market today. The Nissan Leaf and the Toyota Prius are not in the same class. Rather, Model S is in a class with BMW, Mercedes’ S class and Audi A7 or A8, but they are not all-electric cars. The buyback program is just another financing model, but it allows for a guaranteed loan payoff with a trade-in at 36 months. Not every buyer chooses the option, but the source appreciated being able to offer it.

Sales Trends No comment Competition “Tesla has the highest safety rating of any car on the road—not just electric

cars, all cars.” “We are alone in our class as an all-electric, high-performance luxury

sedan.” “Nissan Leaf and Toyota Prius are all-electric but not in the same class as

the Model S. They are significantly less expensive and not high-performance luxury cars.”

“BMW, Mercedes S class and Audi A7 or A8 are more along the line of the Model S, but they are not all-electric.” “We will not really know about the new all-electric cars until they are available. … Even when they get into production,

they are behind us, because we continuing to improve our technology and will be offering new models in the next few years. The Model X is our answer to the SUV. After that, we will have a model [the Model E] that is less expensive, more in the class with the [Nissan] Leaf or the [Toyota] Prius.”

“I see the new Tesla models not as competing with the Model S but complementing it and broadening our appeal to a wider market.”

Buyback Program “The buyback program is not a guarantee really, just a different way to

finance the car. It is a different financing model that allows for a loan payoff when you trade in your car at 36 months. Sometimes it may be the deciding factor, but more often it is a nice option. Not every Tesla buyer chooses it, but we like to have it available.”

Video of Model S on Fire “Our corporate response is available online.”

3. Tesla store manager in the Southwest

Mitsubishi Motors’ (TYO:7211/MMTOF) i-MiEV, Nissan Leaf, GM’s Chevy Volt and Ford Motor Co.’s (F) Focus all have electric plug-in models, but they lack a long range between plug-ins and would not be considered performance or luxury cars. Toyota Prius is popular and can run all-electric, but it is still a hybrid. The Porsche Spyder is an all-electric performance car but is $850,000. The Model S’s price ranges from $58,570 to $106,570. Audi’s EV cars are far from production, and the BMW i3 is disappointing. Tesla cars are all made to order and have an eight-week delivery time. The buyback program is comparable to a lease program but still offers the benefits of tax incentives.

Sales Trends “Some locations are not allowed to sell cars because of state franchise laws. In these locations, potential buyers

come in and learn everything they need to know; then they go home and place their order online at Teslamotors.com.”

“All Tesla Model S cars are made to order. We think eight weeks to delivery is pretty fast, and no one is on a waiting list to get a car anymore.”

Competition

Tesla has the highest safety rating of any car on the road—not just electric cars, all cars.

Tesla Product Specialist Northwest

I see the new Tesla models not as competing with the Model S but complementing it and broadening our appeal to a wider market.

Tesla Product Specialist Northwest

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Tesla Motors Inc.

“Business owners may be driving a high-end, luxury sedan that is gas-powered for personal use but do not want to drive it around every day for business. They want efficiency and luxury, and no emissions is a good, responsible business vehicle.”

“Toyota hybrids are all partially gas-driven. … Chevy Volt is a plug-in model, but it has a short range too. The Ford Focus EZ and the Mitsubishi i-MiEV have plug-in models. But these are not performance cars and, again, have a short range.”

“The Porsche Spyder is an $850,000 car. I am glad they are all-electric, but people shopping that car are looking for performance, not impact on the environment.”

“Audi is still a concept car; the e-tron is still pretty far out from production. BMW i3 is close, but have you seen it? I was pretty disappointed in the design, and it has no range, something like 100 miles. It is just no comparison [to the Model S], and it is not going to mass production either.”

Buyback Program “[The buyback program] is a good option. Some buyers do take it. It is almost more comparable to a lease program;

only you still have the benefit of ownership for the tax credit.” Video of Model S on Fire “The corporate statement from our CEO and the VP of sales is all available online. You can even see the reply to the

owner of the vehicle that caught fire. It is not going to have any further impact on Model S sales.”

4. Assistant manager for a Tesla store in the Southeast

Most Model S cars are made to order and are delivered in two to three months, but a few floor models are available. Sales are expected to increase through year-end. The Porsche Panamera, Mercedes S class and Jaguar Range Rover Ltd.’s Range Rover appeal to the Model S buyer. Other EVs are in a different class, and the new BMW has minimal range and no luxury appeal. Tesla is the model EV developer, so other manufacturers will be following its lead. In three years, the third-generation Tesla will be in production and will be in a class similar to the Prius. The buyback financing option appeals to approximately 60% of Tesla buyers, but not all are likely to take advantage of the trade-in guarantee. When used Model S units hit the marketplace, the availability and affordability will increase the market of Tesla buyers. The fire only proves that Tesla is the safest car in United States.

Sales Trends “Our corporate numbers will be out in November and then we will all know, but we always meet our goals.” “Tesla cars are made to order, and they take two or three months to deliver. But some locations have a few floor

models available, so if a buyer sees one he likes, he can take immediate delivery on one of those.”

“The fourth quarter is always our strongest, and summer is always slowest. Our sales through the end of the year will likely be stronger.”

Competition “Prius still sells more than our Model S, but they are not in the same class.” “Porsche Panamera, Mercedes S class and the Range Rover are more

closely competitive.” “The BMW range is only 100 miles. It will not appeal to the Model S buyer.” “We are not leading the luxury car market, and we likely will not be leading

it in a year. But Tesla is the only luxury electric right now. We are the mentors in electric technology, so even as competition grows, we will still be ahead of the others.”

“In three years, our third generation will come out and that will be more along the line of the Prius. But that will be us going to them, not them catching up with us.”

Buyback Program

[The buyback program] is a good option. Some buyers do take it. It is almost more comparable to a lease program; only you still have the benefit of ownership for the tax credit.

Tesla Store Manager, Southwest

We are not leading the luxury car market, and we likely will not be leading it in a year. But Tesla is the only luxury electric right now. We are the mentors in electric technology, so even as competition grows, we will still be ahead of the others.

Assistant Manager Tesla Store, Southeast

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Tesla Motors Inc.

“A lot of customers choose the [buyback program] option. Of course, it is a good option and helps the buyers have peace of mind. I would say 60% of our buyers choose it, but they may not all trade in their cars at three years.”

“Used Tesla Model S cars that are three years old will be more affordable. A lot of people cannot afford it now, but will enter the market when these used cars become available. It will greatly expand our availability to a broader buyer base.”

Video of Model S on Fire “[Customers] do bring it up. But it is not hard to explain that any other car

would have been less safe. The Model S contained the fire in the front of the vehicle. The driver was safe. It is just proof that we build the safest car in America. It will not impact sales.”

5. Tesla product specialist in the Northeast

High-end vehicle buyers always look to BMW, Mercedes, Porsche and Tesla, regardless of the gas, hybrid or electric options. Tesla wants to see more electric cars in production, and works with other car makers to share and develop new technologies. The market will grow, but Tesla will remain the first and the best. New Tesla models will be in production over the next few years, which will broaden the brand’s appeal. The buyback program assures a buyer that the car will hold its value. The recent fire emphasizes the safety of the Model S.

Sales Trends No comment Competition “Model S is a high-end vehicle and appeals to a buyer that likes BMW, Mercedes and Porsche; gas, hybrid or electric

does not necessarily matter.” “Tesla has always said we want to see more electric cars. That is why we share our battery and technology and work

with other car makers. And we just keep improving our technology too.” “More electric options will be out there, but we were first, we are the best and we are not doing hybrids. Our focus is

on all-electric.” Buyback Program “[The buyback] is a great option. Buyers can finance the car for six years,

and in three years they can trade in the car and with a guarantee to pay off the remaining balance of the loan. They are assured that they will never be upside down, and they still get to take the tax credit.”

“In three years we will have two new models available, so they may decide to upgrade to the Model X or they can go back to a gas-powered car.”

“I push the program when I am selling a car. It is just good to have that security, even if you do not trade the car in.”

“It will guarantee the cars hold their value, and more used and affordable cars will be available. That is when I will get mine.”

Video of Model S on Fire “I can only give you the corporate response as it is published online. The accident just emphasizes how safe the

Model S is. The battery contained the fire in the front of the vehicle. The vehicle warned the driver, and he had time to get out. The fire never entered the cabin. I think people can see it is much safer than it would have been compared to a gasoline-powered car. I do not expect it to have any impact.”

6. Tesla store manager in the mid-Atlantic

Final orders have slowed since the government shutdown a few weeks ago, but foot traffic and sales appointments remain strong. Fourth-quarter sales are expected to trend upward as the economy improves. Supply has improved; all orders are filled in two to three months. Model S shoppers are likely also to consider the Audi A6, the Mercedes E and S

Used Tesla Model S cars that are three years old will be more affordable. A lot of people cannot afford it now, but will enter the market when these used cars become available. It will greatly expand our availability to a broader buyer base.

Assistant Manager Tesla Store, Southeast

Tesla has always said we want to see more electric cars. That is why we share our battery and technology and work with other car makers. And we just keep improving our technology too.

Tesla Product Specialist Northeast

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Tesla Motors Inc.

class, and the BMW 5 and 7 series. The BMW i3 is not a competitor; the i8 may be once it becomes available, but it also will be more expensive than the Model S. All-electric car sales will not outpace hybrid models until the charging infrastructure is in place, but demand will expand eventually. The buyback program works more like a lease, and a buyer has to choose it as a financing option upfront. Most choose traditional financing instead. Still, the cars are expected to hold their value regardless of the financing, and all buyers will benefit from it.

Sales Trends “The government shutdown has held back final sales for a couple of weeks, but it has not changed our foot traffic or

our sales appointments. I expect it will not impact the final decision, just the timing maybe.” “As we enter the holidays, we hope to see an increase because the whole

economy and spending tend to see an uptick during the fourth quarter.” “Supply has definitely improved compared to a year ago. Model S units are

all made to order and take two to three months for delivery. Every order is being filled, so I would say we no longer have a supply issue.”

Competition “I do not really see any electrics already in production that compete with the

Model S. Our buyer is likely to be looking at Audi A6, Mercedes E and S class, or BMW 5 or 7 series.”

“GM is not in the market yet. BMW i3 is available in Europe but not in the U.S. market yet. Maybe we will see more electrics available in 2014 or 2015.”

“BMW i3 is a disappointment. Now the i8 may be more comparable in performance and speed, but it is expected to be more expensive and not likely to be available for a few years yet.”

“Longer-term electrics will take over hybrids in volume as more charging stations are available and the infrastructure is put in place.”

Buyback Program “Tesla initiated the new financing option in the first or second quarter. It is more like a lease program; the buyer has

to make the decision upfront when he finances the vehicle. Most of our buyers do financing still. It is sort of a starter program, more toward a lease program than traditional financing.”

“I think it is more of a comfort factor, really. Not many will really act on it or return their cars. In fact, most of our buyers do not even choose this program.”

Video of Model S on Fire “Customers do bring up the fire. I just tell them to check out the official statement on the corporate website. I do not

think we have seen any negative impact from it.”

7. Tesla store manager in the Northeast

Several states have laws prohibiting Tesla from selling cars directly from its corporately owned stores, but anyone can order a car online. Deliveries take eight to 12 weeks. The Model S is considered the best overall car, not just the best electric car. Competition includes the Mercedes E or S class, the Audi A7 or A8, or the BMW 5 or 7 series. Tesla’s third-generation model will go to market in three or four years, when it will enter the arena against the less-expensive Toyota Prius and Nissan Leaf. The new financing option is similar to a lease but offers buyers the tax credit. Owners may opt to upgrade to the Model X SUV in three years when their trade-in becomes available. The car fire did not affect sales as much as this source expected.

Sales Trends “When the third-quarter report comes out in November, we will all know how

sales were. Our sales have been going well since we have recently been able to sell from this location.”

“Texas, Arizona and Virginia stores are not able to directly sell cars because of local franchise laws. But anyone can order online from anywhere.”

“Tesla builds cars to order and delivers in eight to 12 weeks depending on

I do not really see any electrics already in production that compete with the Model S. Our buyer is likely to be looking at Audi A6, Mercedes E and S class, or BMW 5 or 7 series.

Tesla Store Manager, Mid-Atlantic

Model S is a high-end, performance luxury sedan. It is the best car of the year. We have the best car, not just the best electric car. Tesla does not sacrifice range, performance or luxury.

Tesla Store Manager, Northeast

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Tesla Motors Inc.

the options.” Competition “Model S is a high-end, performance luxury sedan. It is the best car of the

year. We have the best car, not just the best electric car. Tesla does not sacrifice range, performance or luxury.”

“Buyers considering a Model S would be the ones who might drive Mercedes E or S class, Audi A7 or A8, or BMW 5 series or 7 series.”

“As for other all electric cars, BMW i3 is less expensive and frankly lacks appeal. Their i8 may compete with Model S, but it will be more expensive and who knows when it will be available.”

“Tesla is alone in her class. We are so far ahead of the competition it will be three or four years, when our smaller $30,000 to $40,000 third-generation car goes on the market. We’ll go to them. They will not be coming to us.”

Buyback Program “The new financing program is more similar to a lease, but our buyers want

the tax credit and they have to be owners to get it. It is a nice perk for some buyers, more like an option.” “In three years the availability of used Model S units will increase, as will the affordability. The SUV will be out by

then, so some buyers may opt to upgrade to the newer models.” Video of Model S on Fire “Not as much impact as we expected really. [Tesla] sent emails to all our mailing list to explain. The driver got out

unharmed and the car performed as it should have. It did not even impact our safety rating.” 2) TESLA SUPPLY CHAIN These four sources were positive on Tesla, and three reported solid volume growth year to year in their Tesla supply sales. Three also expressed enthusiasm for their involvement in Tesla’s Model X SUV, due out in 2014. Tesla lacks a direct competitor. The video of the fire has created no fallout for the company, but two sources said slight changes to batteries and storage may occur. No source supports Tesla’s battery swapping program. Rather, three said Tesla should focus its efforts on creating more charging stations, particularly in the Northeast. KEY SILO FINDINGS Sales Trends

- 3 sources who are current Tesla suppliers reported year-to-year growth in their business with Tesla: 2 at 15%–25% and 1 at 100%.

- All 3 also look forward to being part of the Model X in 2014. Competition

- All 4 sources said direct competition for Tesla is several years out. - 2 sources said hybrid vehicles do not represent competition for Tesla.

Video of Model S on Fire - All 4 agree said Tesla has not been hurt by the incident. - 2 sources did mention, however, that Tesla may examine the battery and its storage for any needed safety

improvements in the wake of the fire. Batteries and Other Developments

- None of the 4 believes battery swapping is a good idea, though 1 said the program may be ideal in a very controlled, structured environment such as for a fleet of shuttle buses.

- 3 cited the need for more charging stations, especially in colder climates. - 2 stressed the need for improved battery range.

Tesla is alone in her class. We are so far ahead of the competition it will be three or four years, when our smaller $30,000 to $40,000 third-generation car goes on the market. We’ll go to them. They will not be coming to us.

Tesla Store Manager, Northeast

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Tesla Motors Inc.

1. Technical director for a Tesla supplier

Tesla is unique and not in competition with the hybrid cars. It will continue to dominate the market until other EVs, such as GM’s high-end Cadillac ELR, are introduced. This source’s sales to Tesla increased 15% to 20% year to year. Sales have been stable during the second half of 2013 but will increase in 2014 as production for the Model X picks up. The source’s pricing has remained the same. No Tesla supply problems have surfaced. Products in demand are lightweight and durable. The fire created interest only for a few days. Replacement batteries are tricky because they are tied up in government subsidies. The batteries do not work well in the cold, but the East Coast market still would benefit from more charging stations in place and EVs on the road.

Sales Trends “We’ve been with Tesla from the beginning. Our Tesla sales have increased 15% to 20% from a year ago. I think the

second, third and even fourth quarters are about even growth, as Tesla increased production earlier in the year.” “Our sales have been better than I thought they would be. Last year we really didn’t know what would happen. Next

year we will be supplying the Model X, so we will see more growth toward the end of the year.” “We don’t make glamorous products, and our prices have been stable. I don’t know about the other suppliers.” “Tesla is all about lightweight, durable materials. These suppliers will get Tesla business. Any heavy products or

clunky products will not be in demand.” Competition “Hybrids are really a different type of car because they use fuel. They aren’t

really in competition with Tesla.” “The GM Cadillac will be a premium-priced EV that will be more competitive

with Tesla. I’m not sure of the time frame. … Ford and Chrysler will also jump in. The competition will really be several years down the road. Right now this market is Tesla’s.”

Video of Model S on Fire “The fire was just a blip on the radar. It has come and gone. It caused some

turmoil for a day or two. … Tesla may tweak the battery, look around but nothing too substantive.” Batteries and Other Developments “I’m not sure about a replacement battery except at the end of its life. This piece does not work the same as a car.

This whole piece is ‘wrapped up’ in subsidy credits.” “Right now the technology is too new, but they will be increasing the battery range. We are already starting to see

this from suppliers. Now they will be standing back and taking a close look at the range, trying to standardize.” “There are not too many charging stations in the East. EVs are slow to grow back there; the batteries don’t work very

well in the cold. I’ve seen one Tesla in Cleveland, one in Chicago. The market would benefit to get more charging stations and EVs out there.”

2. Director of sales for a Tesla supplier

EV buyers are committed to the technology and are not interested in hybrids, nor are they worried by the Model S fires. Tesla is on track and will not have any real competition in the near future. Sales to Tesla have increased 15% to 25% year to year. Tesla production has leveled a bit. The source predicts a 10% increase in the fourth quarter and further growth in 2014 based on production of the new Model X. However, Tesla will need to confirm the quality of its supply relationships given its dependency on these vendors. Opening more charging stations would help EV sales.

Sales Trends “Our sales to Tesla are not a huge part of what we do. I’d say our Tesla sales are increasing 15% to 25% year to year.

We are having consistent growth; it is stable but not increasing by a huge amount. Growth is more noticeable year to year rather than quarter to quarter.”

“Fourth-quarter sales may increase 10%. I’m setting my expectations a little lower because production has leveled out a bit, but maybe I’ll be surprised.”

“I’m optimistic about 2014 sales to Tesla. Sales will increase with their new model [the Model X SUV].”

The competition will really be several years down the road. Right now this market is Tesla’s.

Technical Director, Tesla Supplier

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Tesla Motors Inc.

“Some suppliers may cause problems, but I can’t name names. Tesla is dependent on other players for some components. Of course, the battery is an issue. Tesla need to make sure they have a good battery source.”

Competition “You have EV buyers and you have hybrid buyers. They are two separate

buyers. There will be no competition for Tesla until you have a level playing field. EV buyers are totally committed.”

“Tesla gets it; they are getting it right. Tesla has styling, performance. They have set the bar.”

“The BMW [Hydrogen 7] is a hydrogen-powered car. It is not an all-EV.” “[The Chevy] Volt is poorly done. It is not competition for the Tesla except for

the price. It has a very poor range [of 90 miles for electric only]. With a normal engine, it is not a true EV. The Leaf is too small for the American consumer market. The Leaf really goes against the Prius.”

Video of Model S on Fire “There have been two reported Tesla fires, and they have had no effect on

the consumers. The first was with the hurricane back East.” “EV consumers are not the average consumers. They will look to make sure they are safe.” Batteries and Other Developments “Replacing these batteries is not the best approach. They are expensive, need to be cared for. Possibly they would

consider selling the replacements.” “Opening charging stations will definitely open up sales.” “EVs lower the center of gravity. They have covered safety and have changed the game. Rollover is very difficult. The

Tesla SUV will have excellent rollover prevention.”

3. Marketing director for a Tesla supplier

Sales volume to Tesla has doubled in the past year, and the supplier will provide parts for the Model X SUV. The source reported instituting a modest price increase in the past year. Tesla’s buyback program may be geared toward consumers who buy a new car every few years. The Model S fire has not been a problem. Increasing the number of charging stations would encourage EV adoption.

Sales Trends “Our volume to Tesla has doubled in the past year. I’m not sure how much will be sold next year, but yes, we are part

of the new model next year.” “We had a small increase in pricing this year. I don’t know about the other suppliers, except that batteries are very

expensive.” Competition “We also supply to some of the other cars, and I can’t comment on their products.” “I would expect there to be a number of other electric models on the road in a few years, all in various price ranges.

Tesla is a very expensive car and would not be in the same price range as a number of the others.” Video of Model S on Fire “I don’t think the fire has been a problem for Tesla.” Batteries and Other Developments “I only know that batteries are expensive, and they are working on smaller, denser batteries.” “I couldn’t comment on the replaceable batteries. That seems like a difficult concept because these batteries are

large.” “We don’t have too many charging stations around here, and you would need to have more to encourage driving

use.”

You have EV buyers and you have hybrid buyers. They are two separate buyers. There will be no competition for Tesla until you have a level playing field. EV buyers are totally committed.

Director of Sales, Tesla Supplier

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Tesla Motors Inc.

4. Production quality manager for a former Tesla supplier

No one is going to burst Tesla’s bubble because the company simply wants to share in the marketplace. It is almost certain to make its sales numbers this quarter, and the former Toyota factory it bought has the capacity for mass production. No one can compete with Tesla in its niche right now, but its lead will erode slowly as the big car companies roll out their EVs during the next five years. BMW could be a particular threat over time. The winning car will be an EV that the average consumer can afford. The EV industry is grappling with battery price, vehicle size, and range. Outside of highly controlled systems like shuttle buses, battery swapping is a terrible idea.

Sales Trends “Apparently Tesla is on track to meet the sales numbers they predicted. The

Tesla S is a success, and everybody likes it and wants to have one. It’s not a golf cart or a piece of junk like some electric vehicles.”

“Tesla has absolutely made electric cars more popular. It tells the world that this is a real car that isn’t going to crap out on you. Car and Driver has said the Tesla S is one of the best cars ever made.”

Competition “Popping their bubble is going to be almost impossible. Sharing in the

marketplace is what they’re after.” “The vehicle [that will go mainstream]—and Tesla people already know it—

will be a midsize EV that almost anybody can afford. The Tesla Model S is not for everybody. [That’s why] Tesla is looking at a pickup truck—something that is all electric but not so fancy, something more affordable. Look at the [Nissan] Leaf and the [GM] Chevrolet Volt: They don’t have everything consumers want, but they offer a lot.”

“BMW could absolutely be competition to Tesla in the future, but I think it will take awhile. BMW is out to establish itself as the premier player. They already have the electric mini, and they’ve launched another one right now. The latest one [the i3] is really something. It’s a fairly small car, but it’s a premium.”

“Unlike Tesla, which popularized electric cars, Coda [Holdings Inc.], Aptera [Motors] and Fisker [Automotive Inc.] have done the opposite: They’ve made horrible vehicles that no one wants. They’ve produced junk or a crappy vehicle or taken millions of dollars in government money and then gone bust.”

Video of Model S on Fire “The Tesla fire maybe showed people that the cars are well protected. If it

had been a gasoline engine, people could have died.” “Even though all the safety systems worked well, it wouldn’t hurt to make

the EV battery case even more impervious. The real problem people are looking to avoid is [water damage]. During Hurricane Sandy, 16 brand-new electric hybrid cars from Fisker Automotive were waiting on the lot to be shipped out to buyers. When the lot flooded, they were submerged in salt water, then caught on fire and melted on the spot. All 16 Fiskers turned into road flares.”

Batteries and Other Developments “Battery swapping is an absolutely brilliant idea for the right situation;

otherwise, it’s a terrible idea. Let’s suppose that you want to have a fleet of buses—say, shuttle buses at the airport. They shuttle back and forth between point A and point B and do that trip round and round, and you know exactly where they’re going.”

“The next big push with electric vehicles is the cost of the battery, so I hope they solve that first. I think adoption will be widespread in five years, but the trick to all this is battery cost. The second is the vehicle size and management. In general, the car is too small to have general mass appeal. … And the next problem is range.”

“A better power pack means the [average] EVs can go about 5% farther than they used to, which is small but a step in the right direction. It should be five times farther, but it’s a step.”

The vehicle [that will go mainstream]—and Tesla people already know it—will be a midsize EV that almost anybody can afford.

Production Quality Manager Former Tesla Supplier

Adoption will be widespread in five years, but the trick to all this is battery cost. The second is the vehicle size and management. The next problem is range.

Production Quality Manager Former Tesla Supplier

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Tesla Motors Inc.

3) NON-TESLA DEALERSHIPS AND MANUFACTURERS These seven sources agreed that Tesla is alone in its class as a luxury EV. Sources representing competing dealers that sell gas cars and hybrids but not yet EVs were predictably less positive on all-electric driving, dubbing EVs as “commuter cars.” No source expects Tesla’s battery swapping program to work, nor did any say that the company had been hurt by the Model S fires. KEY SILO FINDINGS Trends in Production and Sales

- No source had insight into Tesla’s performance. - 2 representing competing dealers said their hybrid sales are approximately even with a year ago.

Competition - Tesla is alone in its class, but the competing dealer sources believe their hybrids have the edge in versatility and

range over EVs. - Those who favor hybrids labeled EVs like Tesla’s Model S as “commuter cars.”

Other - 3 sources expressed strong skepticism regarding the success of battery replacement or swapping. - No source noted any fallout from the Tesla car fire caught on video.

1. Client care specialist at a Massachusetts BMW dealership

Once available, BMW’s ActiveHybrid ($37,000 in the 3 series and $61,000 in the 5 series) could compete with the Tesla Model S in terms of style, performance and price. Hybrids are transitional and a relatively small part of BMW’s U.S. market. Sales of hybrids are similar to last year, with adequate supply for minimal demand. BMW currently does not offer an all-electric car in the United States. It has two models in production, but neither is comparable to the Tesla Model S. The BMW i3, starting around $42,000, is a much smaller car and may offer a step up for a Prius driver. It is expected to hit the U.S. market in January. The i8 is expected to be in the mid-$130,000 range, is more comparable to the Audi A4 in size, and is a more likely competitor for the Tesla Roadster rather than the Model S.

Trends in Production and Sales “Sales and demand for hybrids are about the same as a year ago, but we expect there may be a jump in demand

when our i3 and i8 models are available to buyers in the U.S.” “[Electric/hybrid model] cars are still transitional, so demand is minimal. The technology is new. I do not expect to

see any significant growth in that sector for a number of years. Probably the most popular hybrid out there right now is the Toyota Prius. Those drivers may want to step up into the i3 when it arrives.”

“We do not have an all-electric car available in America, but once our i3 and i8 are available, we will see what the reaction is to the all-electric cars.”

Competition “We have an ActiveHybrid in the 5 series and 3 series. They are probably most comparable to the Tesla Model S in

terms of style, performance and pricing. The 328 EV starts at around $37,000, and the 5 series hybrid is priced starting in the low $60s depending on your options.”

“Our i3, at $41,000, will be available soon. It is our first all-electric, but it is a much smaller car—more the size of a Fiat.”

“The i8 is bigger, the size of an Audi A4, but it has a very high-tech interior. It is pretty cool looking. It is likely to be priced in the $130,000s, but we will not know for sure until they arrive. It will be in a class with the Tesla Roadster.”

“When we have a solid arrival date on the i3, we will begin following up on our electric car buyers and start taking preorders. … I expect it will be available for delivery sometime in January.”

Other “BMW buyers are looking for style and speed. It is hard to see any impact [of used Tesla models hitting the market]

in three years. But the market will look completely different then, with the entry of new electric and hybrid competitors.”

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Tesla Motors Inc.

2. Salesman at a Porsche dealership in Florida

Although Tesla offers a nice car with good acceleration, it does not compete with Porsche. The Model S is at best a second car or a commuting vehicle, with limited range and excessive charging time. Tesla is not a game-changer, and all-electric cars do not hold a broad appeal. Hybrids and hybrid technology will continue to expand and offer better performance and fuel economy.

Trends in Production and Sales No comment Competition “Tesla is kidding themselves to say they compete with Porsche. Tesla has

good acceleration—I have driven one—but there is really no comparison. The Panamera is a true performance luxury vehicle with the agility and speed of a $100,000 car. Porsche used the best of electric technology to amp the engine and acceleration, but Panamera is not an electric car.”

“Hybrids are different. Charging is not a problem. You do it at home in your garage at night, and there is no need for charging stations. Running electric close to home is great and saves on fuel economy.”

“Panamera S E-hybrid is a plug-in. It runs both gas and electric. You always have the fuel backup, so range is not an issue.”

“There is no wide appeal for Tesla. It is a niche car.” “Tesla is a fine extra or second car, maybe a commuting car, but it just does

not make sense as a primary vehicle. Even if charging stations were available, it takes overnight to get a full charge. What are you going to do, sit at a charging station 10 to 12 of every 24 hours?”

“I do not see anything [all-electric] coming from Porsche in the near term.” “Porsche is making a super car; the 918 Spyders will be a plug-in hybrid. But

it is not a practical car either. It is a collector’s car.” Other “The video is just a viral thing. It will not hurt them, but Tesla is not going to

be a game-changer. There is no broad appeal for electrics, but we will see more hybrids to help save fuel.”

3. Fleet delivery manager at a Texas Mercedes-Benz dealership

Mercedes-Benz does not have a car that competes with Tesla Model S. Mercedes does offer hybrids on some models, just as an added benefit. Hybrids are a very small part of their business, with recent sales similar to last year and plenty of inventory to meet demand. The B class will have an-all electric model available in Europe next year. Three to four years out the market may be more competitive for hybrids and/or all-electric cars, but for now buyers are unwilling to buy a really expensive car for better fuel economy.

Trends in Production and Sales “Our sales of hybrid models are pretty similar to last year, just a minute part of our business. Sure, we have plenty

available for the limited demand at this point. We may see demand growing over the next three or four years, and there will be more competition for that market in that time frame too.”

“People are not ready to pay a premium for that [hybrid] feature in order to save money on fuel. It does not make sense.”

Competition “Mercedes does not have any all-electric cars, but the B class will have an all-electric available in Europe next year.” “Tesla is more along the line of a [Toyota] Lexus [RX] 400h or a BMW 5 series. Our cars are totally different. For

Mercedes buyers, hybrid is more of an available option for better fuel economy. Hybrid offers a lower power engine with an electric boost for performance. It is not a driving factor in choosing a car.”

The Panamera is a true performance luxury vehicle with the agility and speed of a $100,000 car. … But Panamera is not an electric car.

Tesla is a fine extra or second car, maybe a commuting car, but it just does not make sense as a primary vehicle. … It takes overnight to get a full charge. What are you going to do, sit at a charging station 10 to 12 of every 24 hours?

Salesman, Porsche Dealership Florida

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Tesla Motors Inc.

Other “[The video had] no impact. It was just a fluke. All kinds of cars catch fire in some circumstance. It won’t hurt them.”

4. Sales representative at an Audi dealership in Maryland

Audi sells gasoline-fueled cars and very few hybrids. This source did not believe any Audi was in competition with the Tesla Model S. The Audi Q5 SUV will be available as a hybrid, but demand for hybrids is minimal. This source also reported little or no demand for all-electric cars.

Trends in Production and Sales No comment Competition “Tesla is not a competitor for A6, A7 or A8. We sell gas-fueled cars, not

hybrids. We do not have much of any hybrids available really.” “The E-tron is a super car, a concept car. It does not compete with Tesla

either.” “I am not aware of any plans to have an all-electric Audi available in

America anytime soon.” “The closest might be the Q5 SUV hybrid, which is in production now. I

expect it will run in the $50,000 range but that is a different car, a different class of car than the Tesla.”

“I do not think we compete with Tesla. We do not have anything in the same market. I just do not see the demand for all-electric cars, so I cannot see them taking any of our market share anytime soon.”

5. VP of communications for an EV manufacturer

The source declined to comment on Tesla’s sales but did say Tesla has brought recognition to the EV industry. Tesla and Nissan will almost certainly rule the competitive landscape in 2014. High-end entries from BMW and Audi—when they do arrive—will compete with each other instead of Tesla. Tesla handled the battery fire well. EVs will remain commuter cars until battery technology improves.

Trends in Production and Sales “Consumer interest is definitely picking up. The success of Tesla has

legitimized the entire industry; consumers recognize the technology is here to stay.”

“Many people who have not bought an EV still have a fear that they’ll be stranded on the road somewhere, but people who are actually buying EVs recognize that they charge them at home and use a different car for long trips.”

Competition “Virtually every car maker has come or is coming out with an EV. Some are

compliance models available only on the West Coast, but others are diving in wholeheartedly. Tesla and Nissan will most likely still be in the lead in 2014, but there is room for very small competitors to be very successful. We feel there is still an opportunity for a more affordable EV to make inroads.”

“[Higher-end manufacturers] will compete with each other but not with Tesla. Tesla has carved out a niche for itself and is now identified as the premier EV.”

Other “The public realizes that running over a large metal object is going to impact any car. Tesla did a good job both in

engineering a car that minimized damage and in immediately addressing public concerns over the accident. I don’t see any long-term negative impact from the incident.”

I do not think we compete with Tesla. We do not have anything in the same market. I just do not see the demand for all-electric cars, so I cannot see them taking any of our market share anytime soon.

Sales Representative Audi Dealership, Maryland

[Higher-end manufacturers] will compete with each other but not with Tesla. Tesla has carved out a niche for itself and is now identified as the premier EV.

VP of Communications EV Manufacturer

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Tesla Motors Inc.

“We do not see any interest in battery swapping. People don’t want to take the chance of getting a dud; they don’t want to get 40 miles down the road and realize the battery pack they left behind is far superior to the one they are now stuck with. We see much more interest in improving charging technology and exploring other options, like wireless. We think EVs will continue to be the commuter car in a family, with a different car used for longer trips, until battery technology improves significantly.”

“We would like to see more states offer state tax credits [for EVs]. Price continues to be a barrier.”

6. New vehicle launch specialist for an auto manufacturer

Competition will be plentiful in a few years, and Tesla will need to increase production to keep up. Consumers eventually will realize more economical EVs and hybrids are available. Most will turn to hybrid cars to avoid having to recharge their vehicles. Tesla’s buyback program is a gimmick, and replaceable batteries do not make sense. Instead, more charging stations are needed throughout the country.

Trends in Production and Sales “Tesla’s numbers are out, so that is no surprise. They can only make 500

cars a week compared to our plants, which put out that many cars in a shift.”

“They have a long waiting list, so they are just filling backorders now.” “Tesla will need to up production to keep up with the competition, or they

will find themselves in trouble.” “I can’t imagine that they will be able to put out an economical car in just a

few years. The battery cost won’t go down that much by 2015.” Competition “There is a lot of competition coming out in all price ranges, and consumers

will find that other cars are more economical than Tesla in the long run.” “The EVs and hybrids are nice-drive cars. You don’t need to rob a bank to own one.” “Consumers tend to get nervous about mileage range. Most of them might be better suited for a hybrid, so they can

go anywhere without qualms.” Other “Electric vehicles are safer than gas cars. If a gas car had hit that debris, it would have exploded and killed a few

people.” “[The buyback program] is a Tesla gimmick, and they won’t keep it up.” “Replaceable batteries aren’t realistic. Where do you store them? How do you take care of them? Recharging makes

more sense.” “Electric is just coming into its own, and it will grow more as charging stations and superchargers are developed

nationwide.”

7. Sales and marketing director for an EV manufacturer

Tesla currently lacks real competition. BMW and Audi are not immediate threats. Tesla CEO Elon Musk has done a “phenomenal” job of marketing Tesla. The company will be flooded with orders if it can market a $40,000 car.

Trends in Production and Sales “I wouldn’t know how Tesla sales are doing. But I think if Tesla can come out with a $40,000 model, it will be

inundated with orders.” Competition “I don’t see BMW as a competitor [to Tesla] right now, and who knows when they’ll come out with a comparable [EV].

They move so slow; that’s why Tesla is doing so well. They can bob and weave through the maze, and Elon Musk has done a phenomenal job of marketing, just phenomenal. He’s like the mad scientist [of EVs].”

“Tesla can continue to make cars as long as its business model is profitable. More car companies will get into the business. … But there’s no competition for Tesla in its niche right now.”

I can’t imagine that they will be able to put out an economical car in just a few years. The battery cost won’t go down that much by 2015.

New Vehicle Launch Specialist Auto Manufacturer

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Tesla Motors Inc.

“Tesla was able to thumb its nose at GM and fossil fuels, which is something we all wanted to see. Basically it’s been the advocate for clean energy and clean driving.”

Other “I don’t think [the fire on video] a big deal. If a gas engine car ran over a

large object like that, you’d have a huge fire. [The lack of fallout] is a credit to consumers, who basically recognized that.”

“[The buyback program] should help with sales. There is no residual [Kelley] Blue Book value on the [Model S], so basically you are guaranteeing the value. ... People also have to understand that they’re paying more upfront but that they’ll save more on fuel.”

“What we’re going to see is battery density going up and prices going down. And one piece of good news is that utility companies are getting involved in portable generators that are clean and will put energy back into the grid.”

“When I first heard about [battery swapping], I was dumbfounded. It’s incredible to think that almost $1 billion was spent on this. The company Better Place spent $880,000 on its battery swapping idea before it went under. It was a horrible idea. Plus, for that amount of money, we could have had a fast charging station every 15 miles.”

4) EV INDUSTRY SPECIALISTS Nine of 10 sources addressed Tesla’s performance, and all nine agreed its sales will remain strong in the near term. However, four voiced longer-term concerns; two worried about Tesla’s ability to scale production, one was skeptical about the Model E’s launch at a more modest price, and one was concerned with bureaucracy involved in selling cars from dealerships. The Model S lacks direct competition but could feel pressure from the Cadillac ELR in the future. Two said Tesla’s competition also may build as it moves down market, especially with its Model E. All sources who commented on battery swapping expressed reservations, but no source reported any ill effect from the Model S fires. KEY SILO FINDINGS Trends

- 9 sources who commented said Tesla sales are strong and should continue that way for the near term. - 4 sources voiced concern for the future: 2 were worried about Tesla’s ability to scale production, 1 was unsure about

the Model E’s potential, and 1 pointed to bureaucracy involving sales from dealerships. Competition

- All 10 agree that Tesla’s Model S has no direct competition. - 2 sources foresee competition coming into play as Tesla scales downward, particularly with the Model E. - 2 other sources singled out GM’s Cadillac ELR as a high-end competitor in the future.

Buyback Program - The 4 who expressed opinions on the program were all positive, saying it may result in some customer upgrades and

a broader customer base once the used Model S units come on the market. Video of Model S on Fire

- All 10 agree that any effect from the incident is positive, regarding the car’s performance and company reaction. 8 of the 10 said a gas-powered car would have fared much worse in a similar situation.

Batteries and Other Developments - 7 sources questioned the reality of battery swapping or replacements. 1 said the program might be ideal for certain

situations such as a fleet of shuttle buses.

1. Trade association executive

Tesla stands alone as a high-end EV, and will cater to people who prefer to use no fuel; it will not be competing with the luxury hybrid cars. As batteries decrease in price and increase in cell density and mileage range, EVs will become more

What we’re going to see is battery density going up and prices going down. And one piece of good news is that utility companies are getting involved in portable generators that are clean and will put energy back into the grid.

Sales & Marketing Director EV Manufacturer

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Tesla Motors Inc.

affordable and will see greater interest in lower-end units, such as the Nissan Leaf and Chevy Spark. Nissan manufactures 2,400 EVs per month compared with Tesla’s 2,000 Model S EVs per month; 6,000 people reportedly are on the Model S waiting list. Tesla has a strong four-year plan that includes a new model every year. The Tesla Model X SUV, which already has a waiting list, will be introduced the end of 2014, when Tesla’s total production still may remain around 2,000 cars per month. By 2016, Tesla expects to market an economy EV, which will put it in direct competition with the Leaf and Spark. The Model S fire showed the public how well Tesla and the car handled the crisis.

Trends “To see how Tesla is doing, just look at the cars they are building. They are

building nearly 500 cars per week. They have a three-month backlog, and this has gone down from a nine-month backlog. They have 6,000 people waiting for cars.”

“Tesla has been beating their target of car production, and we’ll have to wait and see if they can keep this up. Tesla doesn’t have too many production problems. Almost all materials are made at their plant. Only raw materials are missing, and there is no inkling of problems. Everything is done with robots, and the quality is consistent.”

“Tesla has the reputation of being a better car. They wanted to build the Rolls Royce of cars with an electric drive train. Some people know it is a better car, but they don’t know it is electric. It is building a great reputation and has the best-ever test ratings. People take notice of Tesla and buy their cars for that reason. It is a status car.”

Competition “You can’t put a hybrid against the Tesla. … No fuel is better than some fuel. Tesla will be in a class of its own as a

luxury all-electric car.” “Porsche will come out with their hybrid first, but BMW will be their biggest competitor. We are still waiting for

delivery on that car.” “Other manufacturers see Tesla as competition, and that’s why they are trying to mimic this style of car.” “Right now Tesla is No. 2 next to the electric Leaf. Tesla is a big name and doing well; they have good representation.

But the Nissan Leaf puts out 2,500 cars each month, so that has the biggest representation. The Leaf sells for around $33,000, but with government rebates, the price can drop to the low $20,000s.”

“The Chevy Spark EV is just coming out. It is high quality and at the low end of pricing, and it will do well. General Motors just announced a 200-mile battery electric, which will come out in the next few years and be sold on the low end. Their current Volt is a hybrid.”

“Any car with a 200-mile range battery will be the sweet spot, and if it sells for $30,000 and below, it will sell like hotcakes.”

Buyback Program “This buyback program is not bad for the Roadsters. Tesla doesn’t want the

car popping up on eBay. They want to protect the brand and ensure that it is properly maintained.”

Video of Model S on Fire “The fire has not affected Tesla. If anything, it has been a positive. The car

performed as designed. It told the driver to leave and forced the flames to go away from the car. And Tesla responded right away.”

“There are many more fires in gas cars, more than 17 gas car fires every hour. And after 120,000 EVs, this was the first electric fire. EVs have a good track record.”

Batteries and Other Developments “A battery swap won’t make a difference. In four to six years, this will be a

nonissue. We will more likely have a better battery with increased density, with a 300- to 400-mile range. I’ve always said that charging stations aren’t a good investment. Take Blink: It went out of business already. There will be so many of these cars on the road, and the range will be longer; everyone will adopt them.”

“The big driving factor of the electric car is the battery. When the battery cost goes down and the better density increases, then we will see these cars go down to the $15,000 range. There is no maintenance on these cars over a 200-mile range. There are no fluids, no mufflers, no radiators; you only need tires. They even use regenerative

Other manufacturers see Tesla as competition, and that’s why they are trying to mimic this style of car.

Trade Association Executive

The big driving factor of the electric car is the battery. When the battery cost goes down and the better density increases, then we will see these cars go down to the $15,000 range. There is no maintenance on these cars over a 200-mile range.

Trade Association Executive

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Tesla Motors Inc.

braking, and the ball bearings are the only moveable parts. They are basically maintenance free except for the batteries. This will play out over the next 10 years.”

“Generally, all batteries have an eight-year warranty, but Tesla’s is unlimited.” “Tesla is putting up the charging stations to try and get people to buy, to encourage sales. Eventually, there will be

little need for the stations.” Other “The biggest problem is educating the public. There is still a lot of misinformation getting out there. People don’t

know the difference between chargers and charging stations. Some don’t even know what an electric vehicle is.”

2. Battery engineer consultant and software designer

Tesla does not compete with the hybrids. GM’s Cadillac ELR will be the most major threat because it will be a high-end, long-range vehicle. The Model S is very impressive, and Tesla should be able to keep up production in the future. However, how many people will buy expensive vehicles over the long haul remains unclear. Although the Model E economy car is several years out, battery prices could remain high, thereby bumping up the cost of the car. More charging stations are needed to match the range of gasoline cars. Until then, the average driver may be better suited to a hybrid.

Trends “What is the market size in the $50,000 range and up? How many vehicles

do you need to sell in that range to get a return? I would have to be really skeptical about this value.”

“In the news Tesla is doing well, and it will continue to do so next year. The newer Model S drives great, is really nice and very impressive. There is no reason for Tesla not to keep this up. They put out about 500 cars per week, 2,000 per month.”

“Tesla may run into trouble with their Model E economy car, which is a few years out. These batteries are expensive. If you try to put a long-range battery in a smaller car, it won’t work. The cost of a battery alone could be $20,000. Current batteries with lots of cells cost at least $25,000. I don’t think the price of batteries will decrease that much in a few years.”

Competition “Tesla is not in competition with the hybrids. It is a nice niche. It is the car

for people who are trying to be really green. These are different kinds of buyers.”

“The one threat to Tesla would be GM’s electric Cadillac, which will be totally on the higher end. It is a plug-in hybrid, but it is basically electric because it has a good range. Ferrari [S.p.A., of which Fiat owns 90%] could also be a threat.”

“Ford, GM and Chrysler are going with very large batteries. They will be very expensive. Tesla is using a smaller battery, and it is already less expensive than the larger batteries.”

“The Spark is not competitive. It is dinky and has a limited range. It competes with cars on the lower end.” Video of Model S on Fire “The fire should not affect sales, and I would be disappointed if it did. I hope that Tesla’s response quells any

[fallout].” Batteries and Other Developments “Battery swapping has been talked about, but it is a long way off and not very economical.” “I don’t see anything new or any big EV changes in the next 10 years. Every year there is a gradual reduction in

battery cost.” “There will be pushback government regulations in 2018 controlling EVs.”

3. Legislative director for a trade organization

Tesla may run into trouble with their Model E economy car, which is a few years out. These batteries are expensive. If you try to put a long-range battery in a smaller car, it won’t work. The cost of a battery alone could be $20,000. Current batteries with lots of cells cost at least $25,000. I don’t think the price of batteries will decrease that much in a few years.

Battery Engineer Consultant & Software Designer

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Tesla Motors Inc.

Tesla is a more nimble player than the older, stodgy competitors, which will only offer hybrids. These players will stress that Tesla’s cars have a short range, but the company will prove them wrong by having a strong infrastructure of supercharging stations. Tesla hopes to double its capacity next year, barring battery constraints. Risks to Tesla include acquiring some of the custom supplies, such as turn signals, and executing local dealerships, which are rife with political regulations. The Model S buyback and battery replacement programs are just “ploys,” but the company may adopt a battery subscription service.

Trends “Tesla produced 5,000 units in the third quarter and is expecting to put out 6,000 units in the fourth quarter. It

would be reasonable to say that they will produce 2,000 units per month by the end of the year. We’ll know … when they report.”

“In 2014, Tesla is going to try and double their capacity if they don’t have battery constraints.”

“The Model X could do very well. They already have preorders; there are a lot of folks waiting for it. It may be a challenge for the company to get them out in time, the end of 2014. It may turn into an early 2015 model.”

“The Tesla batteries are a commodity … If Tesla puts out 40,000 units a year, the company will use 35% of all the batteries on the market. They are scooping up all the supply. Tesla is also looking at Japanese and Korean batteries.”

“Tesla is also at risk to themselves. They need to execute and start dealerships, but they’ve encountered problems with state regulations and dealer laws. Car dealers pay 20% of local sales tax, so cities are biased toward local businesses. This is an important area for local politicians. Tesla lost in Texas, but they just won a dealership in Virginia, near Washington, D.C. That is an area they really want to penetrate. Tesla is working very hard on the dealer laws; however, the regulatory paradigm may prevent Tesla from opening dealerships.”

Competition “Tesla is outselling other luxury cars in the Bay Area. Overall, Tesla is getting

significant traction. Right now they stand out on their own.” “BMW will be very competitive. If Tesla stumbles, they could have self-

inflicted wounds. But the company is much more nimble than others, and they have dodged competition before. Hybrids really aren’t the same type of competition.”

“Mercedes should be worried. Tesla is totally cutting into their market. Tesla is also taking market share from gas cars.”

“The competition will leverage against Tesla and complain about the limited range compared to a hybrid. However, after three months people lose their range anxiety. Tesla will hit back with the superchargers. The minute you add gas into a car, you add cost. This will be an interesting market to watch.”

“In 2020, 2022, 15% of new car sales will be EVs, zero emission. This is not counting plug-in hybrids. I can’t tell what will win, EVs or plug-ins. The market is too volatile right now, and we have no idea what the next technology will be.”

“Toyota doesn’t want to give up the hybrid edge. While hybrids are heavy in some areas, like California, they only have 5% penetration around the country. But we are starting to see a shift in the public’s behavior. Hybrids will phase out gas cars, and we will start to see new technologies.”

Buyback Program “The buyback is really a marketing ploy to instill additional confidence in the car. It is possible they will lock buyers in.

The batteries are not degrading significantly, so it is easy for Tesla to make this claim.” Video of Model S on Fire “The fire was an initial shock, but a gas car would have exploded. EVs are five times more safe than gas cars.” “Tesla protects its battery more than gas cars do. They will analyze the battery, look at its shielding, which is already

very strong, and they may tweak it a bit.” Batteries and Other Developments

If Tesla puts out 40,000 units a year, the company will use 35% of all the batteries on the market.

Legislative Director, Trade Organization

The competition will leverage against Tesla and complain about the limited range compared to a hybrid. However, after three months people lose their range anxiety. Tesla will hit back with the superchargers. The minute you add gas into a car, you add cost. This will be an interesting market to watch.

Legislative Director, Trade Organization

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Tesla Motors Inc.

“Tesla did a battery replacement demonstration last winter, which is where this all came up. Model S is designed to swap. The company did the demonstration to garner zero emission vehicle [ZEV] credits or bonus points in California state regulations. The demonstration was worth seven credits or $5,000 per credit. It was all an accounting scheme. The California Resources Board is going to study this further, and they may withdraw ZEV credits for battery replacements.”

“Tesla is now proving that superchargers work, and I think this is where adoption will go.” “Tesla puts superchargers up wherever people want them. You just need to call in and ask.” “The Tesla battery is now good for 250 miles, which is good for most everyone. We will see the cost go down.” “Panasonic has increased their battery capacity by 15% to 20% each year, and their capacity will double in about five

years, driving the cost down.” “The electricity use at home is nominal for an EV, 90¢ to $1.10 per gallon. The cost is 4:1, gasoline to electricity. EV

fuel is a quarter the cost of gasoline. That’s a gigantic difference. Most people charge at homes or put solar on their house roofs to pay for the electricity. Studies have shown that 40% of EV owners have solar power. Electric power is really more expensive during the day and cheaper at night, from midnight to 7 a.m.”

Other “Tesla owners aren’t taking advantage of the federal and state tax credit incentives. There is low penetration among

Tesla users.”

4. Green car expert at a trade company

Tesla does not report sales like other large manufacturers, but it has healthy sales and an order backlog of six months. The source wondered if Tesla can sustain sales and grow to 50,000 cars per year globally; most analysts following Tesla believe it can meet this goal. The recent fire would have caused more problems for a gas car.

Trends “Tesla sales are doing fine. I believe they are sold out for about six months.

Tesla does not report sales the way larger car companies do, so it is all a guess until they issue a periodic SEC report and put the tech numbers in there.”

“The big question is whether they can sustain sales and grow to the 50,000 cars or so a year [globally] they need to get to. That’s an unknown although most analysts who follow the company seem to think they will do it."

Competition “Electric vehicle buyers don’t want a hybrid. But if you have to have one, it

would be the [Porsche] Panamera hybrid.” Video of Model S on Fire “The fire was caused by a road debris puncture that would have been

equally, or more, devastating to a gas car.”

5. Editor for an online trade publication

CEO Elon Musk tends to make good on his predictions, so the company is likely to make its numbers in the third quarter. By all signs, Tesla still will be the industry leader this time next year, since new EV cars will need time to become established. However, Musk called Tesla’s maturity into question in his recent attack on a New York Times reporter who wrote about his nightmarish experience on a wintry road trip in a Tesla S sedan. Also troubling are the 19% of Tesla Roadster owners who reported battery pack problem. Cadillac is handicapped by its image as an old person’s car, but BMW and Audi may take some EV share from Tesla if they advertise effectively.

Trends “I’m not really in the know about third-quarter earnings, but I suspect it will be along the lines of what Elon Musk

said. … I think he’s a brilliant marketer, and he’s given us reason to think that things will unfold as he’s laid out.” Competition

The big question is whether they can sustain sales and grow to the 50,000 cars or so a year [globally] they need to get to. That’s an unknown although most analysts who follow the company seem to think they will do it.

Green Car Expert, Trade Company

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Tesla Motors Inc.

“Next year is still a little early for competition in Tesla’s niche. It will take at least a year of the new electric vehicles to get a sense of the different choices. Also, Tesla has an early advantage in the position they’ve created for themselves. It’s less of an eco choice and more of an affluent lifestyle choice. It may be hard for Cadillac to shake its image as an old folks’ car. BMW and Audi may be able to make inroads depending on how well they’re marketing.”

“I don’t think Porsche is coming out with anything soon, but Audi and BMW are working on models that should be very interesting. Cadillac is also going to have a go at Tesla. They may start slowly, and it will take a while for people to get a sense of the car. The Cadillac ELR will like cost between $70,000 and $100,000, and we’ll see what the market reception is to that price point.”

Video of Model S on Fire “The Tesla fire was overblown. Vehicles with combustion engines have accidents and catch on fire all the time. What

bothers me is Tesla’s response. A Volt caught on fire during testing, and the National Highway Traffic and Safety spent two months investigating it. They took it apart. But [CEO Elon] Musk steps in and says, ‘This is what happened, no problem.’ Compare that to GM’s response to the [Volt] fire investigation; it was a very grounded, professional response. Will the battery fire be a problem for Tesla? Maybe, maybe not. But the response does put Tesla’s maturity into question.”

“In a similar vein, I thought Musk’s response to John Broder’s New York Times piece was troubling. It was a crash and burn, extremely aggressive response, very in keeping with the personality of the company. Again, it’s a question of maturity.” [Musk tweeted that the New York Times story was a “fake.” Broder denies this and offers evidence that everything happened just as he described it.]

Batteries and Other Developments “A study released earlier this year by Plug In America showed that 19% of Tesla Roadster owners had some problem

with the battery pack. That’s huge! I have concerns about that as the company scales.” “Before the California Air Resources Board said it said it might eliminate battery swapping for renewable energy

option, Musk had talked about that possibility. Since then, I haven’t heard anything about it from Tesla.” “The Tesla already has strong, advanced driving systems. And automated driving will see its most ideal manifestation

in EVs because the car is a computer on wheels.” “The lack of charging stations is not holding the industry back, although people who don’t have a place to charge it at

home—like multi-apartment dwellers—need a public infrastructure.”

6. Senior policy analyst for a sustainable technology think tank

Tesla proved to the public that consumers can have a good, high-performance car that is totally electric. The biggest competitors for Tesla in the EV/hybrid market are Nissan and GM. Since Tesla is focusing on building a lower-cost EV than the Model S, it may not consider BMW and other luxury car EVs as competition. But in the lower-cost market it will be at a disadvantage to auto giants like GM, which already know how to sell mass-market cars. Companies will need to introduce a $20,000 EV for the sector to go mainstream, and that will take government support and funding for research. Elon Musk “has conveniently forgotten” all the research and government assistance that made the Tesla success story possible. That omission does a disservice to both policy and history.

Trends “The only concern that I’d have on the material side is the battery. But there is no indication Tesla has a materials

crunch. I imagine that they’d want to get away from the rare earth metals [for the battery] and find something more environmentally friendly.”

Competition “Tesla is like the Apple of EVs: very hip and technology-forward. Its biggest competition right now is likely Nissan and

GM. They have their hybrid vehicles in the market and have been working most aggressively on EVs.” “Tesla’s public goal is to get the costs lowered. They are aiming to expand downward, so they may not view the high-

end EVs as competitors. BMW is getting into the market, for example, with some very pretty-looking cars that are even more expensive than a Tesla—well over $100,000. Tesla may not be focusing on the niche for EVs and hybrids that cost $100,000 to $150,000.”

“If Tesla tries to create a lower-cost EV, it may find itself competing with GM. And GM definitely knows how to sell a car to the everyday person. GM would win out in this market.”

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Tesla Motors Inc.

“With EVs, it all comes down to cost. If we’re going to have EVs become mainstream in the next 10 years, we’re going to have to have to be much more aggressive about their technological development than we are right now. We need a $20,000 EV that doesn’t necessarily require a $7,000 battery every five years and can go 300 miles on a single charge. And that’s not going to happen magically. We need more government investment and support.”

“Elon Musk has conveniently forgotten he received government support for Tesla after repaying his government loan. He’s forgetting all the funded research and incentives that went into his company. And that’s doing a real disservice to the policy side of things. Elon has a dazzling and magnetic personality, but Tesla would not be where they are without government help.”

Buyback Program “What will it take for everyone to want to buy an electric vehicle? The program talks about a trade-in every two to

three years, but the lifespan of the average vehicle is 12 years and quite a few people keep their car that long. It may help the niche that Tesla is targeting: people who want to buy a new car every few years. I think most people will be more inclined to look at the fact that financing is $1,000 a month.”

Video of Model S on Fire “The Tesla fire was certainly overblown. The idea that EVs should have a record of not failing 100% of the time is

ridiculous. The vehicle was in an accident, and I don’t think that will affect Tesla at all. They have gone through a very rigorous safety evaluation. After all, if a regular car is hit by an 18-wheeler, it explodes.”

Batteries and Other Developments “In terms of general advances, Tesla and many other EV/hybrids are already pretty automated. Obviously, battery

improvements are the ones to watch. Making the vehicles lighter is another goal. Carbon fiber is getting close to being accepted. Ford and GM are part of the consortium for carbon fiber; if they can make the vehicle lighter, they will.”

“Charging stations will continue to proliferate. The focus in on putting up fast chargers along the main roads. ... You don’t need a charger on every street. We have superchargers in D.C. and New York City and now on the West Coast. The federal government wants to spread it out, and the business side as well. Right now it’s 15 to 30 minutes; if it could take five minutes, like filling a tank with gasoline, that would be ideal for consumers. Of course, a lot of people are charging at home and doing it at night, when electricity is cheapest.”

“People are still apprehensive about electric vehicles. You can fill up a gas tank pretty much anywhere, and you’re not going to have access to chargers everywhere. The app world has been working on this issue, so you can plan your trip around that technology. They’re trying to help, but it’s definitely a paradigm shift.”

7. Member of an EV advisory group

The Nissan Leaf, the Chevy Volt and other EVs may have a devoted following, but Tesla is in a niche by itself and has no real competition so far. BMW and Audi are late-comers and will not be able to compete with Tesla even by this time next year. Government incentives are helping to drive the growth of clean cars. The Fiat E reportedly was made only as a compliance car so that Fiat could sell in California and other states that required car makers to have a certain percentage of zero-emissions vehicles. However, it is selling so well that the company is having to increase production. A shortage of charging stations will not hamper the industry because most EV owners can easily charge their cars at home.

Trends “I have no access to sales information. But if Elon Musk says he’ll do something, he’ll do it.” Competition “Tesla is in a class by itself; it has a cachet none of the other vehicles can match. I love my electric [Mercedes];

that’s why I bought it. And Nissan is going all out: People who bought the Leaf are very devoted to the Leaf. There are also a lot of people who love Chevrolet Volts. But Tesla is not competing with them because it is in its own niche.”

“As for BMW and Audi, they’re a day late and a dollar short. … They are light years behind. The way they embrace technology is not contributing to a really serious effort to improve air quality. And they are not far enough along in

If Tesla tries to create a lower-cost EV, it may find itself competing with GM. And GM definitely knows how to sell a car to the everyday person. GM would win out in this market.

Senior Policy Analyst Sustainable Technology Think Tank

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Tesla Motors Inc.

their production to be here next year. But if you really love BMW or Audi, maybe they’ll come out with something you like.”

“It’s possible that BMW and Audi are just making EVs as compliance cars. California is requiring auto manufacturers that want to sell in the state to produce a certain percentage of electric vehicles, so some companies are just doing the bare minimum to comply with the law. I hear the Fiat E is a compliance car, but sales are going so well that they’re having to ramp up production.”

“The new BMW electric release is in Europe. If they just release a plug-in hybrid, purists are going to be very disdainful. If you’re using gas, you shouldn’t be.”

“They put a lot into marketing—even the CEO before Elon Musk. They did a lot more than many trial model EVs that floundered and vanished. They have done a huge service to the industry.”

Video of Model S on Fire “When you think about all the vehicle fires in regular cars, one fire in a

Tesla is not meaningful. It’s a nonstarter for me.” Batteries and Other Developments “The next big steps [in EV development] will be getting more range for non-

Tesla vehicles and making batteries more affordable.” “Charging stations are going to continue to populate public spaces. But a

shortage of them won’t hold the industry back, because you don’t need a charging station. I just plug my electric vehicle into the wall. People have been made to think they need a big box, but all you really need is an outlet. I’ve had my car for three months and it has never been charged at a public charger. I just charge it at home. The advantage to a level 2 charging station is that it allows you to charge much more quickly.”

“With plug-in hybrids like the Volt, you have gas if you just don’t have enough electricity. But those of us who drive electric cars do not have range anxiety. It’s like knowing how far you can drive on a tank of gas.”

“Battery swapping was originally floated by an organization called Better Place. When I first heard of the founder, he had a huge contract in Israel. He was going to produce an electric car there. Israel has a real incentive to get away from oil. But you have to build facilities for battery swapping, and then people realize that if they can charge at home, why do they need to do this? Since then, Better Place has gone bankrupt.”

Other “Transportation worldwide is just a huge factor in air pollution. Electric vehicles take the guilt out of driving. You don’t

have to worry that you’re contributing to greenhouse gas emissions.”

8. Research engineer and longtime electric car advocate

Tesla appears to be on a positive growth path and has no competition yet in its market niche. The only drawback is that Tesla has shifted the debate about EVs to the question of range, when 80% of everyday car use is for short trips around town. Battery swapping is a ludicrous idea. Rather than pushing for public charging stations everywhere, employers should charge a monthly fee and set up outlets where employees could charge their cars while they worked. EV design would improve if the cars were created by people who actually drove electric cars. Critics who say EVs are not that clean because they may use coal on the grid are unaware of the “selection effect”—that is, consumers who buy EVs also tend to adopt solar panels and wind energy.

Trends “Everything I hear is positive. They can’t make enough of them.” Competition “There is no competition to Tesla among luxury car buyers. About Tesla, I have to laugh, because it’s the No. 1

exception to the rule. It’s trying to compete with the gas cars directly.” “For less-expensive electric vehicles, Nissan is ahead of everybody else. I think they should be in pretty good shape.” Video of Model S on Fire

It’s possible that BMW and Audi are just making EVs as compliance cars. California is requiring auto manufacturers that want to sell in the state to produce a certain percentage of electric vehicles, so some companies are just doing the bare minimum to comply with the law. I hear the Fiat E is a compliance car, but sales are going so well that they’re having to ramp up production.

Member, EV Advisory Group

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Tesla Motors Inc.

“The Tesla fire was overblown. … I thought it was a demonstration of safety that no one was hurt in the Tesla fire. If a gas tank is ruptured that way, it will explode.”

Batteries and Other Developments “With EVs, some things were obviously designed by people who’ve never driven an electric car. Take the cord you

need for charging. … When you’re charging, you have a $1,000 asset that someone could steal. Why isn’t [the cord] retractable, like a vacuum cleaner? The first company that does that will see it become the de facto industry standard.“

“Some people argue that electric vehicles are not clean because they still use electricity that comes from coal. What this ignores is that people who buy electric vehicles want to help clean up the environment, and more than half of them buy either solar or wind power as well. ... As electric vehicles increase, the grid is getting greener too.”

9. Director, automotive studies center of a large university

Tesla appears poised to meet its targets. It faces no immediate threat from competitors, and its purchase of the former GM/Toyota manufacturing facility in California and the current battery glut make it unlikely to suffer capacity constraints. Producing 25,000 cars a year seems achievable. EVs are an ideal commuter vehicle, and Tesla has solved some of the problems with range. But for Tesla to produce a low-cost model is problematic, given the economies of scale. In a recent visit to its headquarters, the source was impressed by the enthusiasm and skill of its engineers. It has a good reputation in the EV community and is not constrained by bureaucracy and tradition. In the EV industry, battery improvements are the “holy grail,” but battery swapping poses safety hazards and is impractical except for certain fleets such as shuttle buses.

Trends “Tesla will be on target with its numbers and will continue to grow

incrementally. I visited Tesla headquarters recently and observed a lot of enthusiasm. … The mix included very experienced engineers and very bright young engineers just out of school. … They do a lot of their own engineering and are not as bound by as traditional companies by legacy, bureaucracy and tradition. It’s quite impressive for such a company to have created an electric vehicle from scratch.”

“[A capacity constraint issue] seems unlikely at this time. They’re doing a lot of things in-house. Through a loan from the recovery act, they were able to buy what used to be a Toyota/GM plant in Fremont, CA. … I’m sure they could handle more than 25,000 cars a year. Also, there is a glut of batteries, so I don’t think that would be a problem.”

Competition “There is none that I know of. I don’t see any other high-end [EV] vehicles

like that. Of course, you’re looking at a $75,000 car, which requires that one have some disposable income. And even so, it is quite expensive. The Chevy Volt and the Nissan Leaf are in another niche. Tesla started with a high-end product, but it’s not one targeted to people with an average-income job.”

“Twenty-five thousand cars a year seems like a reasonable target, and even 30,000 to 40,000 cars a year would be sustainable. What they should not do is try for a low-cost model. The big car companies will make them eat their lunch. For that you would need economies of scale.”

Video of Model S on Fire “I do think the battery fire was overblown. If there is a fire, I would rather be

in an electric car than one with an internal combustion engine.” Batteries and Other Developments “Battery improvements are really the holy grail for EVs. Then there are the

things you have to do anyway, such as improved safety and improved intelligence. An EV company has a chance to leapfrog over some other companies in this regard. The job is easier; you don’t have to worry about fuel efficiency regulations and exhaust emissions.”

Twenty-five thousand cars a year seems like a reasonable target, and even 30,000 to 40,000 cars a year would be sustainable. What they should not do is try for a low-cost model. The big car companies will make them eat their lunch. For that you would need economies of scale.

Director, Automotive Studies Center Large University

Right now battery swapping is probably only a good idea for something like DHL fleets or shuttle buses that go back and forth all day.

Director, Automotive Studies Center Large University

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Tesla Motors Inc.

“Things have been quieter on the battery swapping front recently. For it to become a reality, you need clearly established standards.”

“There are significant safety issues involved in battery swapping. These batteries are high-voltage objects that weigh hundreds and hundreds of pounds. … The high-voltage part is nontrivial. This would need to be done by professionals. … Right now battery swapping is probably only a good idea for something like DHL fleets or shuttle buses that go back and forth all day.”

10. Senior editor for a trade publication

The source questioned the longevity of Tesla’s market and wondered whether a second wave of early adapters will occur. In addition, Tesla soon will be in competition with hybrids, hybrid plug-ins, and EVs from iconic companies with vast resources. The all-electric Model X SUV will see direct competition from the BMW i8 hybrid. Remote battery subheaters could ensure proper battery charging in cooler climates, while standardization of batteries and charging stations would ensure continued EV sales.

Trends “Future sales of Tesla will all depend on the early adopters. How many are out there? Will there be a second wave?

They have a waiting list now, but it is hard to predict how this will play out.” “The Model X SUV, coming out in late 2014, has to first meet new roof crash tests. The car has new gull-wing doors,

which may have manufacturer and quality issues. Mercedes had those doors in the 1950s, and it didn’t work. “The Tesla plant is really a craft shop. They do lots of manual labor, push the cars to the next assembly station. There

is a lot of black area in the plant; they have lots of room to grow. Tesla is also hiring other people from around the globe; their second- and third-generation employees are coming in with a lot of experience.”

Competition “I don’t see Tesla’s market lasting that long. Tesla really needed to come

out 10 years ago and to be way ahead of the game. Tesla will be challenged in the future with hybrids, hybrid plug-ins, and electric vehicles. There are hundreds to thousands of dealers, research and development facilities, and supply bases for these other companies. Tesla has a lead in this field, but they do not have these resources.”

“Everyone in Europe is working on luxury EVs. The next-generation EV will be lighter, cheaper and freer. The luxury brands that are the icons of the world will be competition, especially those that are equally stylish, with better pricing and service backup. Tesla is a very tiny player in the global scene. The more players and competitors, the better.”

“BMW’s project i3 is a battery EV, but they’ve announced a hybrid option. I want to see them sell this thing. The BMW i8 will be a direct competitor for Tesla, even though it will be a hybrid. A hybrid ensures that people can go where they want to go.”

“Once fast-charging becomes more available, hybrids can become EVs without too much engineering.”

Buyback Program “Tesla is trying to protect its name brand with the buybacks. It’s unclear how long they can keep this up. It is also

possible there may be a wave of interest in the used Teslas.” Video of Model S on Fire “The fire didn’t have much impact. Tesla had a full rationale for how it happened from day one. Their cars are

reliable, and it is a science of controlling battery cells.” Batteries and Other Developments “The idea of replaceable batteries is intriguing. Nissan bought into it, and so did the Israeli government. But given

the current level of standardization and the facilities and time involved, I see replaceable batteries as a hindrance. The weak link is always the connection. The batteries can never be changed as fast as the company says they can. People will have to wait in line; the batteries people want may be out. The EV people don’t give replaceable batteries credence, and I’m not sure why it was mentioned in the first place.”

Tesla will be challenged in the future with hybrids, hybrid plug-ins, and electric vehicles. There are hundreds to thousands of dealers, research and development facilities, and supply bases for these other companies. Tesla has a lead in this field, but they do not have these resources.

Senior Editor, Trade Publication

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Tesla Motors Inc.

“Batteries don’t like the cold, and their range really suffers. Tesla will have a problem selling outside temperate climates until there is a wider charging station structure. During a typical day in the low 40s, my Nissan Leaf barely made it back home. I had to turn off all the amenities, the heat.”

Other “The industry faces the same challenges today as they did 100 years ago. They know how to get cost out of a

product and how to make it better.”

Secondary Sources The following seven secondary sources discussed Tesla’s increased use of Panasonic’s 18650 Li-ion Cell batteries; the high demand for BMW’s i3; Audi’s lineup of electric and hybrid cars; a comparison of Porsche’s Panamera S E-Hybrid and Tesla’s Model S; a consumer replacing a 2011 Nissan Leaf with a Model S; the demographic differences between Tesla Model S and Nissan Leaf buyers; and Cadillac ELR representing direct competition for Tesla. Sept. 5 article from The Green Optimistic

Tesla is using a smaller battery source, Panasonic’s 18650 Li-ion Cell, than other hybrid and electric cars on the market in order to reduce battery costs and lift profits in a shorter time. This has increased demand for Panasonic’s batteries, and will continue to do so as Tesla ramps up production of the Model S and X. “As we know, the economies of scale reduce costs the more production increases. That’s why it is so hard to make a

profit on a short production run of practically anything. Big-time automakers, such as Toyota, General Motors, and Volkswagen, sell millions of vehicles per year, making small profits on each on, for big-time profits on the whole. In the case of electric vehicles, such as the Tesla Model S, Nissan Leaf, or the Chevy Volt, since they are produced in such small numbers, it is very difficult to make a profit on them.”

“Fiat CEO Sergio Marchionne compared the Fiat 500e to financial masochism, and GM admits they lose thousands of dollars on each Volt they sell.”

“Somehow, Tesla Motors has managed to beat the odds and produce the Tesla Model S at a profit, and is now worth over $20 billion. Perhaps some of that success is due to making use of a relatively cheap Li-ion cell, the commodity Panasonic 18650, of which about 7,000 make it into each Tesla Model S 85kWh battery pack.”

“Actually, Tesla Motors is the only electric vehicle manufacturer to make use of such a small cell [Nissan and Chevy Li-ion battery packs are made from fewer numbers of larger cells] and also produces the largest traction battery in any mass-produced passenger electric vehicle on the road today, meaning that Tesla Motors seems to be driving most of the demand for the Panasonic 18650 Li-ion Cell.”

“Some quick calculations shed light on an interesting phenomenon, in spite of the fact that, by volume, Tesla Motors is one of the smallest automakers in the world. For example, from December 2010 through July 2013, more than 71,000 Nissan Leaf, equipped with 24kWh Li-ion battery packs, have been sold around the world, a total capacity of 1.7 million kWh.”

“If Tesla Motors sells 21,000 Tesla Model S about 30% with the 60kWh and 70% of the 85kWh Li-ion battery packs, that will amount to an equivalent capacity of 1.7 million kWh.”

“Now that Tesla Motors has gotten their production capacity up to better than 20,000 Tesla Model S per annum, they plan to increase production to 40,000 units with the introduction of the Tesla Model X. That’s an additional 1.7 million kWh capacity per year, which should do two things: Big profits for Panasonic and Tesla Motors, and perhaps a reduction in Tesla’s Li-ion battery pack pricing?”

Oct. 15 International Business Times article

BMW’s i3 goes on sale in Europe in November, with 8,000 preorders. If demand continues, BMW will have to invest more into the venture. A plethora of alternatives are taking hold in the market, led by the Nissan Leaf, which broke the mold in 2010, and Tesla, which sold 12,550 units during the first half of the year. “Bayerische Motoren Werke AG says that a month before its i3 goes on sale in Europe it has more than 8,000 pre-

orders for its first mass-produced electric vehicle, a five-door compact with a standard range of about 90 miles that starts at $41,350.”

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“BMW Chief Financial Officer Friedrich Eichiner told Bloomberg in Frankfurt that if demand continues it will need to invest to boost capacity. The company had aimed to sell at least 10,000 i3s next year in an increasingly crowded market for EV minis.”

“Nissan Motor Co. Ltd. has really taken the lead with its 80-mile range Leaf five-door compact, which debuted in December 2010 and sold its 100,000th unit in July. The Leaf is by far the leader in the EV market, which excludes plug-in hybrids (PHEVs) like the Chevy Volt, which is assisted by an internal combustion engine.”

“Renault SA, France’s second-largest automaker, which owns 43 percent of Nissan, has sold about 40,000 of its line of four EVs since they started hitting the market in 2011, led by the Zoe five-door mini and the Kangoo van, more than half of those delivered between January and August of this year.”

“And of course there’s the Model S from Tesla Motors Inc., maker of the first EV to break 200 miles of range. The company has confirmed sales of 12,550 units as of the first half of the year. As reported earlier, there may be as many as 13,000 more Model S sedans that have been assigned vehicle identification numbers, so it’s easy to assume the company will exceed its goal of selling at least 21,000 units this year. Many analysts are estimating that the company will announce between 5,000 and 6,000 units sold in the third quarter when sales figures come out in the first week of November.”

“China automakers have their own raft of electric vehicles coming out as the country attempts to reduce vehicular emissions in its larger cities. (The BYD e6 is being used as electric taxis, for example.) Chinese-made EV sales figures are currently difficult to calculate, partly because they’re so new and largely because Chinese consumers avoid buying Chinese made cars in general if they can afford to.”

“Excluding China’s domestic market for locally designed and produced EVs, and including BMW’s 8,000 pre-orders, the total global worldwide tally of passenger car EVs sold since December 2010’s Nissan Leaf debuted is approaching 170,000 units, and probably exceeding that figure if you include the low-volume sellers. That comes out to roughly 56,000 vehicles a year.”

July 27 TechRadar news

Audi has been investing in and testing multiple electric, hybrid and synthetically fueled cars that can match the acceleration and comfort of past models without the CO2 emissions. Both Audi’s A1 e-tron and A3 e-tron are set to launch in 2014 in Europe, with the prices yet to be determined. “If the future of motoring is all-electric, Audi’s awesome R8 eTron supercar is the shape of things to come. And it’s

just one part of Audi’s tech-tastic Tron range of next-gen alternative-energy vehicles. Pure electric super cars, sporty hybrids, micro EVs with funky rotary engines stuck in the boot, even a hatchback powered by carbon neutral synthetic natural gas.”

“Let’s kick off with the best bit, a hot lap in the R8 e-tron. It’s a pure electric respin of Audi’s mid-engine super car, packed with a pair of 190hp electric motors and truly massive lithium battery pack—more on that in a moment. Oh, and if you’re wondering, sorry, they’re not going to sell it after all. So, this is a million-euro prototype we’re abusing ... all in the name of science and progress, of course.”

“The R8 e-tron isn’t quite as quick as its petrol-powered siblings. But it still hits 62mph in 4.2 seconds. And the sense of immediate, seamless thrust is something even the mighty new R8 V10 Plus can’t quite match.”

“Next up is the first of two Audi e-tron models that are coming soon to the UK. It’s the A1 e-tron, a range-extended electric car. The electric bits are pretty straight forward. There’s a 13.3kwh lithium pack and a 115hp motor. That’s enough to hit 60mph in under 10 seconds, so the A1 e-tron is no slouch.”

“But the really interesting bit is the tiny rotary range-extending petrol engine they’ve stuck in the boot. It’s a single-rotor Wankel design (yup, the same basic design Mazda sports car are famous for), but it’s small enough to squeeze into the spare wheel well.”

“Anyway, it boosts the A1 e-tron range from 50km in pure electric mode to 250km. Scampering around Berlin with the Wankel engine running, the drone is a little bit annoying.”

“On to the A3 Sportback e-tron. Yup, they just keep coming. This is the second Audi Tron model destined for the UK. Rather than a range extended electric car like the A1, this is a plug-in Hybrid. Headline specs here include Audi’s 1.4TFSI petrol engine in 150hp trim, an 8.8kwh lithium pack, a 100hp electric motor and a total system power of 204hp. Audi says the big deal with the A3 e-tron, apart from the puny 35g/km CO2 output (not including grid emissions from charging obviously) is that it’s properly sporty to drive.”

“And finally, it’s the A3 g-tron. Yup, ‘g’ as in gas. It doesn’t look anything special, but it’s a bi-fueled car that can run on both natural gas and petrol. Except the gas in this case isn’t exactly natural.”

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“Audi has even built a pilot manufacturing plant to produce the gas for Germany. This one isn’t coming to the UK, but the idea of carbon neutral synthetic fuels could be very big in future.”

Oct. 11 MIT Technology Review article

Porsche’s Panamera S E-Hybrid lacks the responsiveness and spaciousness of Tesla’s Model S. However, the Panamera can travel a greater distance because of its gas tank and can hit a higher top speed. “Next month Porsche will start selling its new Panamera S E-Hybrid, a plug-in hybrid that can travel 22 miles on

battery power alone before its gas engine kicks in. Here are some first impressions after I took it for a quick test drive this week at MIT Technology Review’s EmTech conference. (Disclosure: Porsche was one of the event’s sponsors).”

“The new Porsche isn’t quite as responsive—or spacious—as the Tesla Model S that it’s meant to compete with. But it has some advantages, including a much greater range between fill-ups—that could make it a real challenger for Tesla. Although Tesla is a small company, it has been outselling Porsche and several other brands in California this year.”

“Porsche is inviting a comparison between the two cars. At a recent launch event for the vehicle, it had a Model S on hand for customers to compare. In many ways, the cars are similar. For example, they weigh about the same and both have the same amount of horsepower.”

“But a key difference between the vehicles is where that power comes from. Electric motors are more responsive than gas ones, and while the Tesla runs full-time on electricity, only 95 horsepower out of a total of 416 horsepower comes from the electric motor in the Porsche (the rest comes from the gasoline engine). As Eric Huffman, a Porsche Sport Driving school instructor told me, ‘The cars have the same power. It’s just Tesla has all their power in an electric motor, which is instant torque.’”

“That instant torque, which you notice most strongly in the first second or two of acceleration, accounts for the fact that the Model S can reach 60 in 4.2 seconds, compared to 5.2 seconds for the Porsche, according to the two companies. The Porsche has the edge in terms of top speed (167 mph compared to 130 mph).”

“The advantage of a gasoline motor is that gasoline stores far more energy than batteries by weight or volume. As a result, while a Tesla only goes about 265 miles on a charge, the Porsche can go around 600 miles on a charge and a tank of gas.”

“The first is that the Porsche feels far more cluttered and cramped than the Model S. The transmission and electric motor run between the front seats. The large number of buttons and dials contrasts sharply with the relatively simple interior of the Model S, which uses a 17-inch touch screen in place of buttons.”

“The second is that Porsche has found a useful way to give feedback to the driver through the accelerator pedal. The gas engine is designed to switch on if you accelerate more than a certain amount. As you depress the accelerator, it gets slightly harder to push just before the gas engine kicks in, [signaling] that it’s about to come on. That makes it easy to stay in all-electric mode if you want to.”

“Deciding between the two cars isn’t something many of us will need to do, though, given their high price tags. The new Porsche has a base price of $100,000. The Model S has a base price of $70,000, but there’s a $100,000 version that most directly competes with the new Porsche. The versions of the cars that I drove both cost about $115,000.”

Oct. 24 Green Car Reports news

A comparison of Tesla’s Model S and the 2011 Nissan Leaf showed a lackluster performance from the Leaf, which has a mileage meter that is a guessing game and a heater that depletes its range. The Model S, in contrast, has lots of room, a long range on one charge, heating that does not reduce mileage, and strong acceleration. “Since March 2011, our household fleet has consisted of a 2011 Nissan Leaf and a 2011 Chevrolet Volt. But with

the consistently positive reviews of the upscale Tesla Model S, this year we decided to make the big jump to that car. Our home delivery and first drive came on July 9 of this year. We now have about 5,000 miles on our Model S, and it recharges each night in our home garage using a Coulomb Level 2 charger that was first installed for our Volt. We now recharge the Volt on 110-Volt power each night.”

“The Leaf was a solid first effort, but the 2011 models were—sadly—something of a learning experience both for Nissan and for early-adopter buyers. Our Leaf (VIN 000320) performed, and continues to perform, very well as a basic commuter car. Casual mentions and early advertising that mentioned a range of ‘100 miles’ aside, the range was always more realistically right around the 73-mile EPA rating.”

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“But the big negatives with the Leaf were the poor winter heating and lack of heated seats, along with an electric range that is minimally realistic for our needs. The Leaf was clearly a ‘second car with specific limits’ on its use.”

“With the arrival of our Tesla electric luxury sedan, we now have an emission-free car with virtually no limits on its use. Our Model S (in multi-coat red) has the 85-kilowatt-hour battery pack with the standard 362-horsepower motor, air suspension, leather, technology package, twin 10-kilowatt chargers, and upgraded stereo. We are seeing a realistic range on a full charge of 272 miles, and regular charge projection of around 242 miles—and these projections are actually consistent with our driving! Three miles into a drive, the Model S has lost 3 miles of range.”

“The only negative so far is having to get used to how big the Model S really is. It’s longer and, especially, wider than anything we have owned before, and it rides like the big vehicle that it is.”

“Switching from our Chevy Volt to the Tesla Model S highlights how much the Model S wants to continue straight ahead, versus the Volt’s quicker response to steering input on sharp corners. The Model S is much bigger and heavier than the Leaf, too, but it pays back occupants with more interior space, especially in the back seat, as well as a much more comfortable experience during freeway driving.”

“The heated seats and air conditioning work superbly, and the access to freeway ‘Supercharger’ quick-charging stations make it possible for us to plan future road trips with this car.”

“Even more, especially in contrast to the Leaf, almost every drive in the Model S includes moments of fun. The regenerative braking is strong enough that the brake pedal isn’t needed except in rare circumstances, and the acceleration away from a stop is simply joyful play.”

“We also appreciate Slacker Radio—we’re in the process of creating our own themed radio stations—and the verbal commands for the audio system and the GPS navigation actually work!”

“There are, of course, some niggles in the Model S design that many owners have noticed and commented on. Those include the cheapest, smallest, and flimsiest sun visors ever fitted to a car, no real center-console storage, and—absurdly—no cup holders for back-seat riders. However, after the first stop sign or traffic light during any drive, or total domination of any freeway on-ramp, these simply melt away and become niggles forgotten.”

“In the end, the Nissan Leaf is a wonderful and functional city car. After the 2011 model year, Nissan addressed the interior heating issues—offering heated seats and wheel—and at today’s lower prices, a new 2013 Nissan Leaf makes a most practical second or commuter car.”

“But the 2013 Tesla Model S, with the 85-kWh battery pack, can pretty much be your only car—and the experience behind the wheel takes driving to a much higher level. And that’s something to celebrate indeed.”

Oct. 25 Autoblog Green posting

Among EV buyers, women were shown to prefer the Nissan Leaf while men favored the Tesla Model S. “When humanity reaches the stars, it looks like the all-electric Nissan Leaf will sell well on Venus while the Tesla

Model S EV will be snapped up pretty quickly on Mars. Unfortunately, there are charging stations on neither planet.” “In a somewhat lighthearted look at who’s buying electric vehicles, we learn that the percentage of Nissan Leaf

buyers that are female has more than doubled since the beginning of the year as the price of the electric vehicle has fallen and range-anxiety fears have subsided, the Detroit News says, citing Nissan North America’s Erik Gottfried. Almost a third of Leaf buyers are women, up from between 10 and 15 percent at the beginning of the year.”

“Meanwhile, the Tesla remains far more of a dude’s car, with 90 percent of the sedan’s buyers citing performance as the model’s most important attribute, Reuters says, citing Strategic Vision’s New Vehicle Experience Study. Reuters says women are about a third less-likely to buy a Tesla than other luxury brands, and there are 10 percent fewer female owners of the Model S than other [EVs].”

“What about the preeminent plug-in hybrid, the Chevrolet Volt? The Detroit News, citing General Motors’ Michelle Malcho, says its percentage of women buyers has stayed steady at about 22 percent.”

“For those keeping track, Nissan sold 16,076 Leafs through the first nine months of the year, while Chevy sold 16,760 Volts. While Tesla doesn’t disclose monthly sales totals, previous quarterly results suggest about 15,000 units sold this year so far.”

Oct. 15 Chicago Tribune article

The Cadillac ELR may be a direct competitor to Tesla’s Model S60 because of its luxury features, performance and lofty price tag. “The Cadillac ELR extended range electric luxury coupe will go on sale in January for $75,995, including destination

charges.”

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“Derived from the 2009 Converj concept car, the ELR will have a driving range of more 300 miles between the dual fuel powertrain of an electric motor and a gas generator. The electric-only range is 35 miles, General Motors says, but once the battery loses power the 1.4-liter gas generator takes over to power the electric motor.”

“If this sounds like the Chevy Volt, the other plug-in hybrid (PHEV) or extended range electric (EREV) produced by GM, it’s because the ELR is being produced in the same Detroit factory and on the same platform as the Chevy Volt.”

“Before we get into Cimarron-Cavalier mudslinging, let’s note that the ELR looks like a Cadillac. The much-abused 1980s Cadillac Cimarron debased the Cadillac name by looking like a Chevy Cavalier. The ELR looks nothing like the Volt.”

“We haven’t driven it, though we checked out the ELR at the 2013 Chicago Auto Show. It has 20-inch wheels, vertical headlights and taillights that look like boomerangs tapered into the front and rear corners, and aerodynamic considerations all over—door handles tucked into recesses at the end of the doors, active shutters behind the grille, spoiler in back. The ELR is much more like the CTS-V in design. But the CTS-V, with its 6.2-liter supercharged V-8, looks more like a new age muscle car, the ELR is sportiness refined.”

“The ELR impressed automotive journalists enough to earn the Best Production Vehicle title in the Eyes on Design awards for most exciting debuts at the 2013 Detroit Auto Show.”

“The interior features accented leather, microfiber elements, chrome finishes and distinctive Cadillac elegance.” “Despite all its Cadillacness, we can’t get over is the price tag. Even if you deduct the $7,500 tax credit and the

$4,000 rebate in the state of Illinois (10 percent of purchase price up to $4,000 guarantees you’ll get the entire $4K), the base price ELR would start at $64,495, same as the CTS-V coupe.”

“The Audi A5 coupe starts at $40,000 and gets 26 mpg. A BMW 4 coupe can start at $40,000 and a BMW 6 coupe starts the same as the ELR. There are no electrified coupes at that price; the ELR seems to be a direct challenge to Tesla’s growing market share for luxury performance sedans. The Tesla Model S60 starts at about $72,000.”

“GM announced in September it was developing a $30,000 electric car with a 200-mile range, putting it on par with Tesla’s base Model S60, which at 208 miles nearly triples the battery range of the most popular electric, the Nissan Leaf (EPA-estimated 75 miles).”

Additional research by Diana Hembree, Rene Euchner and Lisa Bullock The Author(s) of this research report certify that all of the views expressed in the report accurately reflect their personal views about any and all of the subject securities and that no part of the Author(s) compensation was, is or will be, directly or indirectly, related to the specific recommendations or views in this report. The Author does not own securities in any of the aforementioned companies.

OTA Financial Group LP has a membership interest in Blueshift Research LLC. OTA LLC, an SEC registered broker dealer subsidiary of OTA Financial Group LP, has both market making and proprietary trading operations on several exchanges and alternative trading systems. The affiliated companies of the OTA Financial Group LP, including OTA LLC, its principals, employees or clients may have an interest in the securities discussed herein, in securities of other issuers in other industries, may provide bids and offers of the subject companies and may act as principal in connection with such transactions. Craig Gordon, the founder of Blueshift, has an investment in OTA Financial Group LP.

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