Currently, Europe is among the highest-volume markets for Tesla Motors Inc (NASDAQ:TSLA) outside the US, but that situation might soon change.
Germany – a critical European selling zone for Tesla – said Wednesday that it is contributing 1.2 billion Euros ($1.4 billion) in new electric vehicle subsidies to catalyze the production and sales of clean energy vehicles in the country as it considers reaching at least half the target of “one million EVs on roads by 2020” that it had earlier set.
For Tesla fans however, the move should spark anything but glee. The new subsidy package will not include expensive electric vehicles like the Tesla Model S or the Tesla Model X. When Tesla’s Model 3 does finally hit German roads, it may qualify for the subsidies. That proposition, however, is some distance away given the company – bound by just a single manufacturing plant in the US – will be mulling on how to fulfill hundreds of thousands of domestic orders for the new mid-priced electric sedan first. Analysts have said international deliveries for the Model 3 – including those to Germany – may not begin until several years down the road.
Notably though, while the context above proposes that Tesla’s vehicles could get a tough time competing in price with European electric vehicle manufacturers like Daimler’s Audi, Volkswagen and luxury automaker BMW, it also means it could face tough competition in the future as well.
European regulators are tightening the screws on fuel economy faster than the US, making it urgent for most established automakers to ramp up their affordable electric vehicles line-up. According to Forbes, European Union demanded automakers to maintain an average fleet fuel consumption of 43 miles per gallon last year. Through 2021, that requirement is expected to rise swiftly to 57.4 miles per gallon.
Forbes quotes a report from PA Consulting claiming the current rate of electrification of product line-ups for most European automakers could be lining them up for massive multi-billion dollar fines. The report claims major European automakers like Audi, Volkswagen and BMW could be pushed to convert at least 25% of their total product line-ups to mass market, catering affordable electric and other plug-in vehicles.
For Tesla’s Model 3 – still far away from the reach of Germans and Europeans at large – this could mean stiff competition from more resourceful established European automakers, when Tesla does finally hit the European mass markets for electric vehicles in some years’ time.