Tesla has been winning the electric vehicle (EV) game… or at least the game of public attention around it, judging by Elon’s recent headline grandstanding. But, bright spotlight notwithstanding, Tesla isn’t immune to competition—and that competition is catching up faster than people realize.

Tesla’s main EV competition is Volkswagen (which also includes Audi and Porsche as premium brands). This surprisingly-readable CNN Business article summarizes their emerging rivalry thusly:

For both Volkswagen and Tesla, their ambition to dominate the electric car market depends on their ability to become more like the other.

Unpacked a bit:

Tesla’s main strength is software, especially self-driving stuff; UBS estimates that software accounts for roughly 2/3 of Tesla’s market value, and this is the area where VW is way behind.

But, on the flip side, VW is much larger (by count of cars produced) and their production capacities have been much larger for decades; Tesla is struggling to (reliably) produce enough cars because, well, they just recently started building a massive industrial operation from scratch.

The CNN piece does point out that, on paper, Tesla is about 5x as valuable as VW by market cap… but let’s not forget that valuation is not the same as value. It always comes down to profitability in the long run. Volkswagen has been profitable for a long time. Tesla is a different animal—the company doesn’t necessarily need to be profitable just yet, given its relative youth—but no combination of hype, good product, and growth potential (and leftover tax credits to sell) can guarantee profitability.

Long-haul Tesla investors just have to be okay with being nervous for (potentially) a very long time.

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