• Ford’s new Mustang Mach-E is positioned against the Tesla Model Y.
• Both cars have similar features, but Ford enjoys a huge price advantage.
• The arrival of competitors threatens the profitability of Tesla.

Elon Musk has never been afraid of competition. In fact, he has stated on multiple occasions that the mission of Tesla is “to accelerate the advent of sustainable transport by bringing compelling mass market electric cars to market as soon as possible.” The celebrity-CEO even praised several Tesla-competitors in March 2019 for their progress on electric vehicles.

Although Musk’s mission is noble, the onslaught of competition is not good news for Tesla shareholders. Most of the competition staring Tesla in the face comes from legacy car manufacturers that have decades of car-building experience. Among the competitors set to enter the electric vehicle market, Ford’s new Mustang Mach-E poses an imminent threat.

Mustang Mach-E vs. Tesla Model Y

In 2018, Ford claimed it was going “all-in” on electric vehicles and committed to more than doubling its investments on the project. Living up to the promise, Ford unveiled the Mustang Mach-E on Sunday in Los Angeles. The all-electric SUV is positioned directly against the Tesla Model Y crossover. To his credit, Musk congratulated Ford on the unveiling. With Tesla stock having appreciated close to 100% since June 2019, Musk seems confident in the company’s ability to tackle competitors.

Ford’s president of global operations Joe Hinrichs told CNBC that the Mustang Mach-E will hit the market around the same time as Tesla’s Model Y.

Ford’s Significant Price-Advantage Over Tesla

When it comes to specs, performance and pricing, the two cars are quite closely matched. The bare-bones versions of both cars even have the same range.

While the Mustang Mach-E has lesser cargo space than the Model Y, it more than makes up for it in acceleration. Another advantage of the Mach-E is that it offers All Wheel Drive dual-motor option for all variants whereas the Model Y only offers it for the long-range battery pack.

The bigger battery variants of the cars are similar as well.

On paper, the cars appear to be pretty closely matched. However, Ford has a huge advantage that is getting overlooked: the plug-in electric vehicles tax credit. The U.S. government offers a $7,500 tax credit to the buyers to lower the upfront costs of plug-in EVs. The tax break is available to each car manufacturer individually but only until they sell 200,000 units.

After a car manufacturer sells its 200,000^th qualifying EV in the U.S., the tax credit is gradually phased out. The credit begins to phase out in the second quarter after the quarter in which the manufacturer reaches the limit. For the first two quarters of the phase-out period, the credit is slashed to $3,750. For the next two quarters of the phase-out period, the credit is again halved to 25% of the full credit amount. Then it goes to zero in the sixth quarter after the car maker reaches the limit.

Tesla’s tax credit will be fully phased out by the beginning of 2020. Apart from Tesla, the only other car maker to have used up the credit to its entirety is General Motors.

Since the Mach-E is Ford’s first EV, the company will continue to enjoy this $7,500 advantage over Tesla for quite some time. With this advantage, choosing the Mach-E over the Tesla Model Y—or even the cheaper Model 3—becomes a no-brainer for many buyers.

While Mach-E is among the first competitors to be directly facing off against Tesla, it’s far from the only one. The likes of Volkswagen, Volvo, Mercedes, and Porsche etc. have already announced their intentions to enter the EV market in the next 12-24 months. According to Bloomberg estimates, roughly 67 EVs are about to launch over the next two years. Given the scheduled expiration of Tesla’s credit, the competition couldn’t have arrived at a worse time for Tesla.

Although the entrance of Ford to the EV front is in line with Tesla’s original mission, it is definitely bad news for the shareholders.  With the $7,500 price advantage, it will be extremely difficult for Tesla to compete against Ford while maintaining profitability.