Will Tesla steamroller German luxury makers? Perhaps not

with No Comments
2014 BMW i3 and 2014 Tesla Model S [photo: Tom Moloughney]
It has become an article of faith among some Tesla fans and owners that the company will inevitably rise to compete with and ultimately defeat the titans of the global auto industry.

This belief is especially prevalent for the luxury sector, where three German carmakers dominate the global market for pricey and admired vehicles of all sorts.

About Tesla’s chances, reasonable minds may differ.

The Silicon Valley electric carmaker has done remarkable things in its 13 years of existence, and rattled those German luxury makers to their cores.

While BMW was far ahead of Audi and Mercedes-Benz in offering a real-world battery-powered car (its i3 hatchback in 2013), that car was conceived as fundamentally an urban vehicle rather than a long-range electric car.

The arrival and subsequent sales success of the Tesla Model S set all three on their ear, and Porsche too.

Tesla Motors, Palo Alto, California

Tesla’s big and pricey long-range electric car is now in its sixth model year, while the Audi e-tron quattro—the first competing German luxury vehicle that will attempt to match it on range—won’t be out for another year

It will appear at roughly the same time as the Jaguar I-Pace, but British luxury maker Jaguar Land Rover is far smaller in volume than any of the three German companies.

An all-electric BMW X3 crossover will follow, as will the Mercedes-Benz EQC, its own electric crossover.

But being late to the party doesn’t necessarily mean failure, as the industry saw with the relentless 50-year rise of Toyota from laughable Japanese newbie to feared and highly profitable global powerhouse.

The question of profits is significant, because the Tesla Model 3 has to sell in volumes and at average prices that will turn its maker profitable after 13 consecutive years of losses.

Legacy automakers have the advantage of profitable gasoline vehicles that can subsidize their losses on electric cars; Tesla doesn’t.

BMW factory

German luxury brands in particular are highly profitable; Audi contributes a highly disproportionate share of VW Group’s overall profits compared to the much larger Volkswagen brand itself, for instance.

The issue was highlighted by a Bloomberg opinion piece in early August, which called the idea that Tesla would steamroller German makers “nonsense.”

Its headline—”BMW as the next Nokia? Nonsense”—referred to an earlier opinion piece in the British Financial Times (paywalled) which suggested that BMW would go the way of largely defunct Finnish mobile-phone maker Nokia.

The piece countering that argument suggests that the German makers’ consistent profits will let them wind down production of diesels as they ramp up electric cars.

It might have a slightly different cast if it took into account the newly announced and aggressive rules in China for sales of electric cars, at a level that California regulators can only dream of.

While battery-electric vehicles emerge best when designed on dedicated platforms with flat battery packs under the floor—VW Group’s MEB architecture is one such—it’s not a given that those must be built on separate production lines.

Volkswagen ID Buzz Concept

The ability of the German makers, or indeed any global car company, to intersperse vehicles carrying not only of different engines but plug-in hybrid variants and battery-electric vehicles too gives them far more flexibility to meet market demands while maintaining profits.

No question remains that Tesla rocked the industry and changed it permanently. The regulations in China would not likely have come about if Tesla hadn’t shown what was possible.

Tesla has yet to demonstrate that its Model 3 sales and volumes will turn it profitable at last, though every electric-car advocate and owner likely hopes devoutly that it will.

But the ability to innovate and make money at the same time is what separates the winners from the losers.

Just ask anyone who remembers the now-defunct British auto industry.

By John Voelcker Courtesy Green Car Reports

Leave a Reply

Shares