Tesla is in the news again, this time for better reasons - business competition. The biggest brand in electric cars has competition from German carmaker Audi
Of late, whenever we hear the word Tesla, the immediate reaction that most of us have is “What has Elon Musk done this time?!” He certainly had an awful time last week - his tweet about taking Tesla private ended up costing him $40 million, his role as Chairman, while also leaving the company wondering if they should take away their CEO’s twitter.
But this week, Tesla is in the news for better reasons - business competition. The biggest brand in electric cars has competition from German carmaker Audi. You know... the car with a logo that looks like the Olympic logo minus an O.
The luxury carmaker from Germany is now taking on Tesla on the American company’s home turf. Audi held an elaborate event outside San Francisco to announce the e-tron, a $75,000 electric SUV that will compete with Jaguar’s $70,000 I-PACE and Tesla’s Model X 75D and the $100,000 Model S. Audi said it also has a deal with Amazon that it hopes will make recharging its electric vehicles easier.
And this rise of electric vehicles, and with it the competition that Tesla has to look forward to form the crux of our podcast today. My name is Rakesh, and this is Digging Deeper with Moneycontrol.
Electric cars are no more the preserve of nerds or environmental activists. The big money, as Tesla demonstrated, is in high-end EVs. Electric cars - like the Reva that was popular some years ago - used to be smaller, cutesy automobiles but they didn’t exactly set the markets on fire. Because, if we are honest, Keogh is right - we want our cars to be cool.
Cleaner fuel doesn’t have to mean austere driving experiences. The constant buzz about Apple probably getting into EVs is a good example. Most people would consider getting that particular EV, nerdiness quotient be damned. However, nothing can explain the popularity of Apple watches when proper Swiss watches are available at the same prices. But that could probably explain why carmakers like Mercedes, Jaguar, BMW, and Porsche, besides Audi and Tesla, are launching posh vehicles that sell at premium prices. They see a market for luxury SUVs that do not guzzle fuel and spew smoke. There’s also no doubting the aspirational value of a Tesla Model S.
The Europeans are bringing their cool. No, seriously.
The Audi e-tron, to the untrained eye, is a stunning SUV. It reminds me of the Q series SUVs from Audi that we see on the roads in India. The e-tron is Audi’s attempt to grab a piece of the luxury electric vehicle segment that has been virtually monopolised by Tesla.
Scott Keogh, president of Audi of America, said he expects the premium EV segment to expand in the coming years and claims Audi is prepared to take on the competition. He said, “...to me it's simple. Launch a really cool car. That's what they want in the luxury market. This is a super cool car. I'm convinced we're going to see the growth there." Keogh’s certitude is not shared by everyone though. UBS, a prominent Tesla skeptic, admitted that the widely-anticipated German carmaker’s EV came up short in terms of performance.
CNBC reported that Patrick Hummel, an analyst with UBS, wrote in a note to clients, “e-tron underscores that catching up with Tesla is more difficult than expected by many...While we appreciate that a solid EV product is not only about acceleration and range, there is still a gap to Tesla...and Tesla might be able to sustain its lead for longer.”
But Audi is unfazed by such reports. Scott Keogh said, “I want Audi to be the number-one electric vehicle seller in America over the long term.” Reuters reported that Audi dealers, especially the ones from California where Tesla has a significant presence, cheered the e-tron at the event. At a time when Tesla is reeling from criticism regarding its notorious production schedules and its eccentric CEO Elon Musk, the new entrants into this segment might just have an opportunity to establish themselves.
While such EVs account for only around 1 percent of new-car sales, USA Today noted that Audi’s e-tron acts as a hedge against what experts predict will be a lucrative segment once consumer acceptance grows and EV charging stations mushroom. Karl Brauer of Cox Automotive said, “The premium EV race is about to get interesting...The (e-tron) features standard-issue Audi design...a beautiful interior and exterior execution. For electric vehicle doubters, plenty of which remain, the e-tron will mark an important threshold on the path to widespread EV adoption.”
He explained that 10 new players are expected to enter the electric car market over the next two years in the US. Audi is accepting orders for the newly revealed EV and is expected to start delivering them in the second quarter of 2019. The German company is also said to be planning the e-tron GT concept, which could be a direct competitor to Tesla’s Model S. The GT could be revealed at the Los Angeles auto show in November.
So what does $75,000 buy you?
Ok, let’s take a good look at the machine that the $75k gets you. Audi’s new SUV is powered by twin-electric motors - front and rear - and its 95 kilowatts/hour lithium-ion batteries line the car’s floor. It has everything Audi buyers expect to see in their vehicles: Quattro AWD, technology-first cockpit, and that familiar fit and finish. Drivers are presented with Audi’s virtual instrument panel and touchscreens. The centre-mounted screen handles infotainment and navigation duty. The car has 20-inch wheels, a top-view camera system, LED interior and exterior lighting, a Bang & Olufsen sound system, heated and cooled seats and a panoramic sunroof. Pretty nifty for an entry-level SUV.
The e-tron can go 0 to 60 mph in 5.5 seconds. The lower-end Teslas average around the same or a bit faster while the more expensive ones would absolutely smoke the e-tron in speeds. They can even beat the exotic sports cars - the Italian and British supercars we grew up lusting over. I predict that James Bond will outwit a villain while driving a spruced-up Tesla in a Bond movie within the next ten years, and Elon Musk will have a cameo in that film. He should play Q, don’t you think? Or he could just play the villain.
The European version will use cameras instead of conventional mirrors to give drivers a view of the car’s rear. What I found most interesting is, this feature is still not approved by American regulators. A fancy car with no fancy rear cameras.It’s all about the batteries
And what of the all-important heart of the car? The battery weighs about 700 kilos and comprises 36 pouch-type cells, similar to those used by Jaguar and Chevrolet in their electric vehicles. Tesla uses cylinder-type battery cells in its cars. Audi claims this battery can be recharged to 80 percent in 30 minutes using a 150 kW charger.
The carmaker will partner with Amazon to sell and install home electric vehicle charging systems to American buyers of the e-tron. Amazon will deliver the hardware and hire electricians to install them through its Amazon Home Services.
Audi may have pulled off a small coup, striking a deal with a partner as large as Amazon. This is the first time Amazon has struck such a deal with an automobile manufacturer. It heralds a new direction in Amazon’s business. And yes, Alexa will be in these cars as part of the infotainment. Pat Bigatel, Director of Amazon Home Services, said, “We see charging installation as a very important business.”
Interestingly, Audi hasn’t released any official numbers regarding the range of the battery. Which is surprising given that it is arguably the most crucial consideration for anyone switching to an electric car - how far will it travel on a fully charged battery? Will we be stranded in the middle of nowhere at night?
Well, distances are improving from earlier, less powerful electric cars that struggle to touch 100 miles on a single charge. However, there’s still the anxiety of running out of battery in between charging points when driving an electric-only car. The Sunday Times sounds a cautionary note: “It is important that drivers bear in mind that, as with claimed fuel economy figures provided for petrol or diesel cars, the range claims made for any electric car are optimistic and should be viewed as a best-case scenario for those times when someone is minded to drive like a saint.”
Tesla sets the benchmark in these distances, having proven its mettle. Its Model X 75D, a competitor for the e-tron, can potentially do 259 miles or a bit over 400 kilometres. Jaguar’s I-Pace can do 298 miles or ~480 kms. Porsche claims its EV, the Taycan, can do 310 miles. The Sunday Times reported that Audi has claimed 248 miles on a single charge.
The other headache when thinking of getting an electric vehicle is charging time. Considering how annoyingly long even mobile phones with large batteries take - I’m looking at you, iPhone Plus - it’s no surprise that this parameter assumes importance. And it is not a simple matter of just leaving your car charging overnight. For instance, Jaguar says you will get a mere 38 miles from the I-Pace if you leave it charging overnight plugged into regular household mains. It takes a 7kW wallbox to provide a full charge in approximately 13 hours.
Where there’s a battery, there’s a charger (hopefully)
Pay attention, my friends. We’re discussing the future of travel here. Charging points while travelling will become very important. The US has over 16,000 electric charging stations and around 44,000 charging outlets across the country.
Jaguar says a standard charging point at a service station should get around 168 miles out of the I-Pace after an hour’s charging. Teslas takes around 11 hours to charge with the same 7kW wallbox. But many of these cars have the ability to charge at over 100kW. Audi claims its EV supports 150kW charging, meaning it can charge the car in under one hour. Tesla claims its 120kW supercharger can get the car up to 80 percent in just 40 minutes.
Anyway, in short, overnight with a decent kW charger or one hour with a supercharger will have the car battery close to full.
I expect the power bills will be pretty super too. But hey, this is the luxury segment we’re talking about. It’s pretty clear that Audi designed this SUV to appeal to traditional buyers considering a switch to electric vehicles. The e-tron looks and feels like the rest of Audi’s lineup. That’s probably the whole point. Familiar top-flight luxury.
Audi officials told Reuters that the Hungarian plant that will make the motors for the e-tron will begin producing the equivalent of 200 vehicles per day. In comparison, it was reported in May this year that Tesla was producing 500 cars per day.
Look out, Tesla?
All this tech leaves UBS unimpressed, as we’ve noted earlier. Because, in the end, Audi has the only rival that matters: Tesla. According to LMC Automotive, Tesla sold 94 percent of the luxury electric vehicles in the US last year. They expect Tesla's market share to drop to 86 percent next year as the e-tron, Jaguar's I-Pace and Porsche's Taycan start attracting buyers. LMC Automotive estimates Tesla's share of the luxury EV market will fall to 63 percent by 2021 when more luxury carmakers enter the segment.
But not analysts are convinced that the Audi will prove a worthy alternative to Teslas. Hummel wrote, “..the not-so-impressive key stats could dampen the sales outlook and make it more difficult for Audi (or other premium OEMs in general) to break even with their EVs. This plays into Tesla's hands and in China, into the hands of the emerging local EV players." That would not please Audi, which said it expects close to 30 percent of its US customers to switch to an electric vehicle by 2025.
Tesla faces little direct competition before 2020, according to Toni Sacconaghi, an analyst with Sanford C. Bernstein Co. Moreover, Tesla is moving from luxury to mass-luxury with the Model 3 and the Model Y.
So what does Musk think of the competition? He probably enjoys it. Musk has long stated that he welcomes the arrival of more electric vehicles because that will expand the EV market and turn more people on to EVs and help reduce gasoline- or diesel-powered vehicles. He once said, “When somebody is looking at buying a Model S, they’re considering that against something like an Audi A6 or A8, or against a Porsche Panamera or ...BMW 5 Series, 7 Series. That really tends to be the basis of comparison.”
The chatter around Audi’s e-tron is good for EVs. The e-tron, and other cars like the I-Pace, represents a new breed of electric vehicles. These vehicles come from corporations with massive manufacturing might. Sure, they look and feel futurist - out of our reach, like things we’d never actually put money down for. But, as Techcrunch.com noted, they also look and feel mass produced, which is a good thing because they then seem relatable. If manufacturers hope to take electric vehicles mainstream, they need to build them at the same level as traditional automobiles.
Governments love EVs
This could happen sooner than we expect. Thanks to the decline in prices of batteries as well as government incentives, the adoption of electric vehicles is increasing. China, the largest EV market, is offering tax incentives and subsidies to local automakers to produce electric vehicles. the largest EV market. The Chinese government promises to reimburse 30 percent of the total value of the electric vehicle! Holland’s parliament is focusing on banning the sales of petrol and diesel cars by 2025. Even India announced plans to entirely replace conventional vehicles with EVs in the future, as did France and the UK. This presents a huge opportunity for the market. Now you know where Audi was coming from.
Electric Cars in India
However, in India, that goal has been scaled down to 15 percent of all vehicle sales in the next five years.
Well, setting aside the irony of discussing the future of electric cars in a country that has 8 hour power cuts most days and lives off diesel generators, it is a story of optimism. No, I’m not being sarcastic.
Many governments are also drawing up plans to install electric vehicles charging stations. The Indian government has been emphasising zero-emission electric mobility across the country by 2030. In a densely populated country like ours, that’s a major challenge.
The centre has proposed the installation of charging stations every 3 kilometres in cities that have populations over 10 lakh people. On highways, it wants to see charging stations spaced 50 km apart. A senior government official told the Economic Times in May, “It is expected that 30,000 slow-charging and 15,000 fast-charging stations will be required to be put up in a phase-wise manner in the next 3-5 years.” Great.
By 2030, all these charging stations will look much like the phone charging points in railway stations and airports. 10 cars jostling for space around one plug point. But, as of now, E-mobility is a nascent industry in most countries. Capital costs are high and the payoff is uncertain. Further, as Mint reported, Prime Minister Narendra Modi is may look to shift focus from subsidising vehicles to subsidising batteries.
That makes sense, given batteries make up 50 percent of EV costs. There remain many obstacles. For instance, well, GST. Electric vehicles are taxed at 12 percent under GST, but batteries are taxed at 18 percent. India is entirely dependent on the import of lithium-ion batteries from Japan and China. While some attempts are being made to acquire lithium and cobalt mines in Australia and South America, private investment in battery manufacturing plants and developing low-cost production technology will be crucial.
In India, Mahindra, under its future-forward MD Pawan Kumar Goenka remains the leader in this segment, however small. Mahindra’s E2O is a fairly popular electric vehicle. Tata is also said to be planning its own EV. At the auto expo in Delhi earlier this year, Maruti Suzuki showed off its upcoming EV. Nissan announced that it is likely to bring the Leaf EV to India. Luxury carmakers like BMW and Mercedes also announced that their EVs will be available in India in the next couple of years.
All things considered, the car you buy 10 years from now will very likely be an electric sedan or hatchback.Or well, that is the hope.The Great Diwali Discount!
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