Why Tesla Motors Inc (TSLA) Isn’t Afraid of the Competition

Tesla Motors Inc (NASDAQ:TSLA)‘ ballooning market value has astonished even its most devoted critics. Shares of the electric-car maker are up more than 370% on the year. However, competition is starting to heat up in the electric vehicle space with new entrants, such as BMW targeting the mass EV market in a big way. Despite such threats, Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk sees a bright future for his niche auto company. In fact, Musk’s opinions of the competition may surprise investors.

The more competition, the better
“I hope Tesla is surrounded by electric cars from other manufacturers,” the outspoken CEO remarked in an interview with Bloomberg earlier this year. It now looks like Musk’s wish is becoming a reality. This week, BMW joined the ranks of established automakers with EV models for sale. BMW unveiled its new all-electric i3 model in New York on Monday, though the car won’t be available in the United States until the second-quarter of 2014.

Tesla Motors Inc (NASDAQ:TSLA) bears immediately anchored to the BMW i3’s price point of $41,350 before federal and state tax credits, which is notably less than what it costs for a new Tesla Model S. However, the Model S gets nearly three times as much battery range as the i3, as well as faster acceleration. Then again, who’s counting? Not Musk, since Tesla welcomes EV competitors.

To be fair, this isn’t just CEO lip service. In fact, Tesla is already helping some rival automakers build electric cars. The company is supplying powertrains for the 2014 Mercedes-Benz Electric Drive, which will include Tesla-manufactured battery packs, electric motors, on-board chargers, and other electronics. Toyota Motor Corporation (ADR) (NYSE:TM) also has Tesla Motors Inc (NASDAQ:TSLA) to thank for its electric RAV 4; it comes with a Tesla-made motor and lithium-ion batteries.

These are two examples of how Tesla Motors Inc (NASDAQ:TSLA)’s business model is structured to accelerate widespread EV adoption, even if that means working together with competitors. I suspect we’ll see more deals between the Palo Alto company and rival automakers in the future. However, before mass EV adoption becomes a reality, carmakers such as Tesla need to focus on producing cheaper electric options.