Tesla set to disrupt Israel's car market

The unexpectedly low price of the electric vehicles is a wake-up call for Israel's car importers and a game-changer for the sector.

Tesla has officially launched its sales website in Israel, with the first consignment of cars due in Israel this month, and the prices are far lower than expected. The cars will be marketed by Tesla itself online and can be seen at the company's showrooms in Ramat Aviv and Petah Tikva. Market sources believe that Tesla already has hundreds of orders in Israel and Shagrir will provide garage and roadside breakdown services.

The basic Tesla Model 3, with a range of 448 kilometers, will cost NIS 179,000 including taxes. The Model S saloon with a 663 kilometer range between charges is priced at NIS 420,000, before add-ons. The newly unveiled Model S Plaid, which has three electric motors, starts at NIS 644,000, while the Model X luxury crossover with a 580 kilometer range starts at NIS 446,000. Add-ons, which are routine in the luxury car market, can make these prices 20%-30% more expensive.

Israel's car sector has been stunned by the prices that Tesla has published. The prices are substantially lower than initial estimates and are lower in Israel than the cars that Tesla naturally rivals. In Germany, the Tesla Model 3 sells for €43,000, before subsidies, and competes with cars such as the BMW 330 plug-in hybrid. But in Israel, according to its price, the Tesla Model 3 will be competing with the Skoda Superb and the like.

The Tesla Model S, which sells for €87,000 in Germany and competes abroad with the BMW 5, will compete in Israel with the Audi A4 models.

This is a major disruption of the car market in Israel, although the impact should be kept in proportion. Tesla is still a niche player, within a niche with only three models to offer, all in the premium electric vehicle sector, which in 2020 represented less than 1% of the cars sold in Israel. Tesla already has a respectable backlog of orders in Israel of hundreds of vehicles, mainly from the high-tech community. These customers already jammed up Tesla's online sales site on Tuesday, the day of its launch, and it is highly likely that the first consignment of cars, due to reach Israel within a few weeks, has already sold out.

Moreover, with its basic starting prices, the cars could also become a hit with the large leasing companies, especially because there is strong demand from high-tech companies. It is hard to imagine Tesla launching its own in-house leasing company in Israel but then there is nothing that Tesla could do that would be a surprise.

The prices that Tesla is able to offer undoubtedly reflect the strength of the Israeli shekel against the US dollar. In these terms, Tesla deserves a medal for not choosing to profit from Israel's strong currency at the expense of the cadre of first Israeli customers, who are determined to own a Tesla. Instead Tesla is passing on the full savings of the exchange rate in order to create here a base for a broader entry into the Israeli market.

Of course only a car manufacturer that works directly in Israel like Tesla, which has a market cap on Nasdaq out of all proportion in relation to its profitability from car sales but which has overall sales with 'green advantages' over other carmakers, and with the ability to make the headlines, can allow itself such a move as this. But it makes no difference to the Israeli customer, if the manufacturer wants to lose money - that's his business, especially if any future weakness in the shekel hikes up prices overnight.

It is also important to point out that what Tesla calls a basic price is exactly as it sounds. Practically every feature, even electronic applications, is offered as an option for extra payment, and it could cost 20%-30% above the basic price, before the car gets onto the road. Even so this is still aggressive pricing.

Tesla is not immune though to the major obstacles facing all electric vehicles in Israel, including first and foremost a recharging infrastructure in its initial stages. At present Tesla's branded Superchargers network has made very preliminary steps in Israel so that the carmakers first customers will need to use home chargers or chargers at work in order to increase range. This could be a big restriction for many customers who live in apartment buildings although instead they could make use of charging stations being offered by private charging contractors throughout Israel and these solutions too are still few and far between and not suitable for a large number of cars.

Tesla's prices and entry into Israel are a wake-up call for many people in the car sector. For car importers, or at least some of them, this is a potential change in the rules of the game. Although this is currently a niche, almost all car manufacturers worldwide are planning to enter the electric vehicle market.

With a price and specifications like Tesla, it will be very difficult for rivals to gain a foothold in the Israeli electric vehicle market. The problem will be particularly severe for importers, which are planning to bring in electric vehicles from China in the coming years and have now seen a glass ceiling put in place in terms of price, which probably can't be broken.

Ultimately, if Tesla is very successful in Israel, it could push up the entire market share of electric vehicles and draw the attention of the Ministry of Finance. It is quite possible that if Tesla breaks the sales barrier in the market, it will encounter regulatory obstacles and new taxes. Welcome to Israel.

Published by Globes, Israel business news - en.globes.co.il - on February 3, 2021

© Copyright of Globes Publisher Itonut (1983) Ltd. 2021

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