- Luxury car makers Volkswagen and Mercedes-Benz have announced their intention to launch electric vehicles in a few years' time.
- The upcoming EVs are designed with better specs than Tesla Model S to help them steal market share from Tesla.
- How real is the threat for Tesla?
Tesla (NASDAQ: TSLA) is reputed to be the most dominant electric car maker both in the U.S. and the world. Tesla’s electric vehicles (EV) and plug-in hybrid electric vehicles (PHEV) continue to outsell their counterparts in global markets, and luxury car makers are not happy about it.
Although the penetration of EV and PHEV vehicles in the U.S. clocked in at less than 1% of total vehicle registrations, luxury car makers now consider Tesla a credible competitor. Volkswagen-owned Porsche and Mercedes-Benz have announced their intention to soon launch electric vehicles to compete directly with Tesla’s leading Model S. To be sure, Volkswagen, Mercedes-Benz, and BMW already have electric cars in the market, but nothing that can touch Tesla’s Model S. For most consumers, driving range and price tag are the two most important criteria when buying an EV. Tesla Model S sports a 70-85 kWh battery capable of 240-270 miles (EPA) driving range, for $75,000-$105,000. Compare that to Volkswagen e-Golf 24.2 kWh battery, 83 miles (EPA) with a $34,270 price tag; Mercedes-Benz B-Class Electric Drive that sports a 28 kWh battery, 87 miles (EPA) with a $42,375 asking price. The mileage capability of Tesla Model S stands head and shoulders above its competitors, and allows Tesla to command premium pricing for the car.
Now Volkswagen’s Porsche and Audi are determined to outclass Tesla in the innovation department. Porsche has already unveiled a four-sedan sports car prototype that will be powered by Tesla-like batteries, but charge to 80% of maximum capacity in just 15 minutes and accelerate faster than the 911. Porsche says its EV will be better than a Tesla, the only reprieve for Tesla being that Volkswagen will launch it in about five years’ time.
Meanwhile Mercedes-Benz is lining up a Tesla rival that will be capable of 250-310 miles driving range, about 10% better than Tesla Model S. Mercedes has not given a definitive timeline for the launch of the new vehicle, only saying it will hit the market in a few years’ time. Then there's also Apple's Project Titan another potential source of competition, if rumors are right.
Dissecting The News
This is of course not very good news for Tesla, which has never had to compete directly with luxury car makers. But there are some holes in the story that could minimize the potential impact on Tesla. First off, it’s not 100% clear whether the stated driving ranges for Porsche’s and Mercedes-Benz’s upcoming EVs are in European-based NEDC (New European Driving Cycle) or the more common American-based EPA. NEDC ranges are about 33% on higher than EPA ranges. As a result, Tesla’s existing models sport significantly higher NEDC ratings than EPA ratings. For instance, Tesla’s Model S 90D sports a NEDC rating of 381 miles while the Roadster 3.0 sports a NEDC rating of 439 miles, both of which are much higher than the stated EPA ratings. If the given driving ranges are in NEDC, then they would work out to only about 70% of the stated ranges when converted to EPA. Until more details are available to clarify the point, no definitive conclusions can be drawn.
Porsche can be a real competitors to the Model S due to its superior handling and track ability. Porsche will also likely beat the Model S with better interior quality. Meanwhile, Mercedes-Benz is perhaps a wild-card at this point. Although it lost the crown of the most popular luxury brand in the U.S. to BMW some years ago, it still boasts a powerful brand recognition which could hugely work in its favor against Tesla if all other factors are held constant.
But Tesla has some compelling advantages over its two potential rivals. Tesla has an extensive supercharging network that both Porsche and Mercedes-Benz can only dream of. It will perhaps take quite a number of years for both companies to match this. Moreover Tesla is not exactly a sitting target, and plans to launch the next-gen supercar the ‘‘Maximum Plaid Mode’’ that will probably kick its competitors out of the park with the announced specs of 0-60 mph in less than 2.8 seconds.
The Key Takeaway From All Of This News
Investors should, not for a moment imagine Tesla is going to have it easy with these two auto giants for rivals. Volkswagen is the world’s largest automaker with plenty of cash to burn while Mercedes-Benz remains one of the most prestigious luxury car brands. Both companies are solidly profitable while Tesla’s losses keep piling up. Tesla shares have managed to tuck on gains of 17.9% YTD, and are likely to remain a good investment over the next five years. But Tesla investors should keep watching over their shoulders for potentially industry-changing developments like these.
Cover image source: Flickr