Tesla is now a king amongst carmakers, but here’s why you shouldn’t buy one

Tesla is now a king amongst carmakers, but here’s why you shouldn’t buy one
Tesla is now a king amongst carmakers, but here’s why you shouldn’t buy one

Owners of Tesla stock will be feeling very smug indeed this week, after watching the company’s share price climb by almost 40 per cent in two days on the back of a wave of optimism about the electric carmakers’ future.

News on Friday that Tesla made a $105m profit in the final three months of 2019 helped kickstart a surge in demand for shares, sending Tesla’s market value soaring to $164bn on Tuesday and confirming its position as the world’s second largest carmaker behind Toyota. Some analysts are even predicting Tesla could become a $1tr business, behind only Apple and Microsoft in the list of the world’s largest companies. It marks a striking turnaround for electric vehicles maker, which in June was reportedly nearing bankruptcy after unnerving investors by missing production targets and burning through cash.

Investors are eyeing the business opportunity arising from government action to cut vehicle emissions by getting consumers to switch to electric. Just yesterday the UK government announced no new petrol, diesel, or hybrid cars will be sold in the UK after 2035, a major boost for electric vehicle makers.

Tesla is well known for making expensive, stylish electric vehicles that people actually want – a revolutionary approach in the early days of the market when the alternatives were cars like the Renault Twizy. It’s also had almost a decade-long head start on other carmakers to build its electric vehicle expertise, meaning its cars often boast longer battery life and slicker handling than their rivals.

Renault Twizy (Photo: FRANCOIS GUILLOT/AFP via Getty Images)

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This week’s share price surge is a based on a bet that Tesla will stay ahead of its rivals, and continue to make the most desirable electric cars on the market. But the major pothole threatening Tesla’s electric vehicle dominance is the price of its cars. Even its “affordable” Model 3, which has a range of about 250 miles, has a starting price of £42,000 in the UK. Last year Tesla chief Elon Musk hinted a cheaper Tesla could be in the pipeline, but that will likely take at least three years to materialise.

Meanwhile, the competition is about to get a whole lot stiffer. In the last two years almost every major carmaker has committed to spend billions of dollars on building an electric car business, and this year the fruits of their labours will start reaching the UK market.

In some cases, these new offerings outperform the flagship Model 3 on price and battery range. The new Vauxhall Corsa-e, for example, will hit the UK later this month with a £22,000 price tag and 211-mile range. Meanwhile the Volkswagen ID3, set for launch in the summer, will have a starting price of £27,000 with a range of 205 and 341 miles between charges – more than most people drive in a week.

That’s just the start. In the coming years expect car makers to wage war with Tesla over pricing and battery ranges in an effort to claw back market share. Many are joining forces to develop more powerful batteries and new car designs more quickly. Tesla may have been one of the first out of the gates when it comes to electric cars, but its rivals will soon be giving it a run for its money.