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Tesla Eats Into BMW, Mercedes, Audi High-Margin Sales As Germans Miscue

BMW, VW’s Audi and Porsche, and Mercedes have invested huge sums to produce plug-in hybrid electric vehicles, but one German expert believes this is a big mistake, and Tesla Motors’ all electric approach is already eating into their high-end sales.

Photo of the Remarkables mountain range in Queenstown, New Zealand.

According to Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) at the University of Duisburg-Essen, not only have the big three Germans wasted money on the blind-alley of plug-in hybrids, they are losing sales in the most profitable end of the luxury market to Tesla. Rich people who have formerly bought the flag-ship Mercedes S-Class, BMW 7 Series and Audi A8 are turning to the Tesla Model S.

Plug-in hybrids harness an internal combustion engine to a battery powered electric motor. The battery-power typically allows up to about 30 miles of electric-only driving, while the gasoline engine has the range of a traditional motor. The battery can be recharged independently, or, while free-wheeling on the road. The battery on regular hybrids can’t be charged independently and only allows maybe one mile of battery-only operation. The problem is the two power plants add a huge amount of weight. The complexity adds big extra costs.

But in the race to provide green buyers with much better fuel consumption and lower carbon dioxide (CO2) emissions, plug-in hybrids were thought to have the inside track on battery-power, at least until fuel cells become competitive by around 2025.

IHS Automotive recently looked again at its medium to long-range forecasts and raised its prediction for battery-only vehicles in 2020 a bit to just one per cent of the global market from just under one per cent. This will creep up to 1.5 per cent by 2025. IHS Automotive said hybrids and plug-in hybrids market share will rise to seven per cent in 2020 from a previous estimate of almost five per cent, and accelerate to 16 per cent from its previous prophecy of just over six per cent in 2025.

But according to Dudenhoeffer, this isn’t going to happen. Plug-in hybrids are not proving popular with buyers. They are also seen as not very environmentally friendly because most plug-in hybrid drivers will use internal combustion engine power for most the time.

In a report called “Tesla asserts itself in the luxury class,” Dudenhoeffer said that even in markets like Germany and Switzerland where there are no subsidies for electric vehicles, the Tesla Model S is grabbing sales from the likes of the Mercedes S class.

Dudenhoeffer’s remarks came in the week when Morgan Stanley analyst Adam Jonas raised his target price for Tesla Motors shares to $465 from its current level of close to $240, predicting that the company will forge ahead in the race for so-called “app-based, on-demand mobility”.

Dudenhoeffer said Tesla’s batteries check-mate plug-ins.

“Tesla’s range of up to 450 kilometers (281 miles) makes the cumbersome plug-in art rather uninteresting. This makes it high risk that the premium manufacturers have invested in the wrong technology,” he said.

And in Germany at least, Europe’s biggest single market for cars, plug-ins aren’t seen as very green and are demonstrating a misstep by the German premium car makers.

“I think plug-in hybrids are the wrong direction and will not be successful. The costs are too high. The weight of the car is too high,” Dudenhoeffer said in an interview.

“I think environmentalists and governments will come to the conclusion that plug-in hybrids are not real progress. I’m sure that in the next two or three years, the buying public will come to the view that these cars are not environmentally friendly because they will start to burn oil after just a small bit of electric power,” he said.

Dudenhoeffer disagreed with IHS Automotive’s predictions, which he said were really a total of the automakers production plans rather than a reflection of likely sales.

Tesla would soon be taking away the cream of the German premium manufacturers’ most profitable sales.

“In a lot of markets we are seeing Tesla doing better than the BMW 7-series, Mercedes S-class, Audi A8 and Porsche Panamera. Tesla can boast real innovation and customers with big money are trying it. I’m not sure if Tesla will be successful in the long term but when they broaden the line we will see if it can bring revolution to the car industry.”

Surely, this advantage can only be trained on the top end of the market, where Tesla’s big and very expensive batteries are viable?

“No. I think in the next 10 years Tesla will have medium and compact cars. We are seeing the next generation of batteries with the Nissan Leaf possibly getting 500 kilmeters (300 miles).”

Tesla’s Model X SUV is scheduled for launch next month. The smaller Model 3 will follow in 2017. Other models are expected.

Earlier this week Audi announced its new Q6 battery only-powered SUV. It will be launched in 2018, three years behind the Model X.

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