A Tesla Motors Inc (TSLA) Roadster By A Different Name

The vehicle is a Lotus Elise with carbon fiber body panels, and electric battery pack, and an AC motor from AC Propulsion. The company producing it plans to have a limited production run of this electric car before moving on to mass market electric cars. Followers of Tesla Motors Inc (NASDAQ:TSLA) may think I am describing their company but I am not. This is the description of the reborn Detroit Electric and its supercar, the SP:01.

Car competition

Reported by the tech magazine Wired, Detroit Electric is being brought back to life after shutting its doors before World War II. The magazine calls the car a “legal clone” of the Tesla Roadster and looking at the car, viewers will certainly see why. Although Tesla has ended production of the Roadster to focus on the Model S, comparing the Roadster with the SP:01 gives investors a feeling of just how similar these vehicles are.

While the cars are not perfect comparisons, Detroit Electric’s plan to expand into the mass market after producing its limited production supercar mimics that of Tesla’s business plan. So the question is: How much of a threat is Detroit Electric to the success of Tesla Motors?

Partners of Tesla

What has driven Tesla Motors Inc (NASDAQ:TSLA) as far as it has? While a clear vision of producing attractive electric cars is certainly part of it, most of Tesla’s success is due to the help of partnerships and the deep pockets of Tesla CEO Elon Musk. As Tesla was looking to raise more money, Toyota Motor Corporation (ADR) (NYSE:TM) stepped in with a $50 million stock purchase and an agreement to buy parts from Tesla. However this is not where the involvement with Toyota ended. The Japanese automaker sold Tesla the NUMMI factory for a only $42 million, a bargain for such a massive facility.

But Tesla had help from overseas as well. Mercedes-Benz maker Daimler AG (NASDAQOTH:DDAIF.PK) purchased a ten percent stake in Tesla and began to order parts from Tesla. While Daimler has sold much of its Tesla equity stake, the German automaker is increasing its orders of Tesla parts which will soon power an electric version of the Mercedes-Benz B Class.

Another helper of Tesla Motors Inc (NASDAQ:TSLA) has been none other than the Department of Energy which has provided Tesla a $465 million loan. Regardless of one’s political feelings about this loan, it certainly has been a help to the start-up automaker. As of now, Detroit Electric is relying on private capital but remains to be seen just how much capital will come online for the company’s use.

Real threats to Tesla

So far, Tesla has been able to be remarkably successful. It produced 2,500 units of an amazing supercar, is currently producing 500 Model S sedans per week, and expects to report a Q1 2013 profit on both a GAAP and non-GAAP basis. But Tesla is still a speculative investment. A major recall, breakdown in production, or decreased demand for the Model S could pose a threat to Tesla’s future. With Detroit Electric still producing the SP:01, Tesla’s biggest threats are product, production, and demand based. While success for Detroit Electric could make the company a competitor to Tesla, this will not happen for at least a few years as Detroit Electric would have to tool up and produce a mass market car. In the time in between, much of Tesla’s fate will be decided. We will see how many Model S sedans Tesla can produce, how many it can sell, and the progression of the Model X and Gen III vehicles. By the time Detroit Electric plans to be producing their mass market car, Tesla will likely be much stronger and equipped to handle competition from other start-ups.

Tesla and the EV market

Right now, the percentage of car sales as electric is tiny compared to the vast majority of gas car sales. To make a profit, Tesla Motors Inc (NASDAQ:TSLA) will have to change this and is already doing so by delivering around 5,000 Model S sedans after its limited Roadster production. What the company has done so far is a drop in the bucket compared to the millions of cars sold each year leaving much room for growth. If Detroit Electric can succeed, it will be just another competitor in this giant market. And if Tesla is successful in 2014 (when Detroit Electric hopes to go mass market), it will be an indicator that there is plentiful room for electric cars, both from start-ups and established players.