Tesla Motors' Competition Is Kicking Into High Gear

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Tesla's April Fool's Joke, the Model W. Source: Tesla Motors.

First things first. Let's give credit where credit is due: Maybe the best April Fool's joke this year came from Tesla Motors , when it announced an entire new product line dubbed the Model W (shown at left). Of course, the hypothetical Tesla watch isn't real, but what's funny is that it seemed to have managed to trick some gullible investors -- or at least algorithm-based high-frequency-traders -- into pushing its stock a bit higher in after-hours trading.

As laughable as that is, what isn't laughable is the increasing competition facing Tesla as major automakers turn more of their focus to future electric vehicles. That increased competition in combination with lower oil prices, which make driving standard vehicles cheaper, at least for the time being, have some investors worried. But should you be?

Here they come
There are at least four other major automakers planning to focus on drastically improving their electric-vehicle offering. Those automakers include Detroit stalwarts Ford Motor Company andGeneral Motors as well as German-based Volkswagen AG and Japanese-based Nissan Motor Corp. Let's take a look at the two Detroit automakers on that list, and their strategies.

The first thing on those automakers' to-do lists is to improve the driving range of their fully electric vehicles to roughly 200 miles, which is still a step behind most of Tesla's Model S variants, but at least in the same ballpark.Perhaps more challenging than simply achieving that range is to still be able to offer the vehicle at a reasonable price tag. Achieving a more affordable electric vehicle with 200-mile-plus range is where Tesla is a step ahead in terms of the competition: Tesla plans to unveil its Model 3 in 2016 and begin selling it in the following year. The vehicle is rumored to be about 20% smaller than the Model S, with a price tag around $35,000 -- about half the current price of a base Model S --and a range of at least 200 miles.

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General Motors has made arguably the largest splash recently by announcing its Chevrolet Bolt concept car, which would be put into production and slated to hit the market in 2017. GM said the electric vehicle would be designed to offer more than 200 miles of range, with a price tag of $30,000.

On paper, the Bolt immediately looks like it will be Tesla's firstlow-cost challenger with 200 miles of range, but let's dig deeper.

Those two prices, for Tesla's Model 3 and GM's Chevy Bolt, aren't an apples-to-apples comparison. For instance, Elon Musk stated that the Model 3's price tag doesn't include any state or federal tax incentives. On the flip side, the Chevy Bolt's pricing does include those incentives. In theory, one could take the Chevrolet Bolt's $30,000 price tag and tack on $7,500 in federal tax incentives. Meanwhile, by the same logic, using the Chevrolet's standard of pricing, the Model 3 would check in with a price tag of roughly $27,500 after said incentives were included.

While GM is aiming to soon compete with Tesla on its end game of producing a mass-affordable and fully electric vehicle, Ford is taking a more step-by-step approach to competing with Tesla.

Ford, rather than preparing to go all-in on electric vehicles like the Bolt and Model 3, currentlyoffers EcoBoost engine options to improve fuel economy for a standard internal combustion engine. Ford also offers a couple of hybrids, such as the Fusion Hybrid, which don't need to be plugged in, and uses the gas engine and regenerative braking to recharge the battery. The Fusion hybrid gets a miles-per-gallon-equivalent, or MPGe, of 44 city and 41 highway.

Ford also offers plug-in hybrids, such as the Fusion Energi, which achieves a MPGe of 95 city and 81highway. Last but not least, Ford's fully electric Focus is rated at an MPGe of 110 city and 99 highway. So, ultimately, even though Ford has a mix of substitute products for Tesla's electric vehicles, it has a ways to go before it can match Tesla's Model 3 or Chevrolet's Bolt for a mass-affordable vehicle with a 200-mile-plus range.

Ford will continue to build on its strategy to improve its electric and hybrid vehicles going forward, and while the company won't comment on potentially working on a mass affordable vehicle, don't be surprised if it's in the works already -- because that's the next step for the Dearborn automaker.

The race is on
What's clear, though, is that automakers are pushing more electric-vehicle and hybrid sales before 2018, when California and eight other states will begin to require the companiesto meet much higher sales targets for zero-emission vehicles, according to Automotive News.

While the increased competition in recent yearsmight seem worrisome for Tesla investors, it should be noted that Tesla and major automakers are very different in terms of their vision. This is what, in my opinion, gives Tesla a chance moving forward: Major automakers are still making big bucks with internal combustion engines, and that means they will never be as forward-looking as Tesla. That gives Tesla a chance to make a better product ahead of the curve, and so far, the Palo Alto company has proven it can do just that.

As electric vehicles become more profitable, since increased production and adoption will lower costs, expect competition to increase even further. However, that's what Elon Musk has wanted all along. He doesn't see General Motors' and Ford's electric vehicle products as competition; he sees GM's and Ford's internal combustion engine vehicles as competition.Musk invites electric vehicle competition -- he says bring it on, because more competition means more people are adopting electric vehicles, which is good for Tesla-- and he's going to get what he asked for sooner rather than later.

The article Tesla Motors' Competition Is Kicking Into High Gear originally appeared on Fool.com.

Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.