By on June 30, 2010

It’s no fun knocking Tesla. Having spent my most formative years growing up just South of the Silicon Valley, and as a lifelong resident of the West Coast of the United States, Tesla’s the closest thing I’ve got to a home team in the auto industry. In fact, as I write this,  a Tesla-branded coffee mug, sits due East of my keyboard, a thoughtful housewarming gift from a kind family friend. This unexpected gift, and the frisson around Tesla’s newly-public stock price prove that there’s a lot of excitement around the California upstart. Unfortunately, Tesla is but a small, inexperienced fish swimming in the global shark tank of the auto industry. Now, one of the big sharks, Volkswagen, is beginning to circle for the kill.

In May, Audi’s Rupert Stadler declared to the preeminent German car magazine Auto Motor und Sport that “Our goal is the complete victory.” Buoyed by strong sales momentum in China and elsewhere, Audi has been mouthing off about its ambitions for some time now. But Stadler spent as much time talking about electric cars as he did growth in the US and China, talking up VW’s relationship with BYD and Sanyo, and promising electric city cars. Only the Stadler’s bombastic headline hinted that Audi’s gain might come at Tesla’s expense, as well as Mercedes’ and BMW’s.

But in June’s AM und S, Audi once again stole the headlines, proclaiming production plans for an electric version of its mid-engine R4, itself based on VW’s BlueSport Concept. At six seconds to 60 mph, it would be considerably slower than the Tesla, but its 250 km range would be similar. And considering that gas and diesel VW and Audi (and possibly Porsche and Seat) versions could start under $25k, it seems fair to say that Audi will be able to price EV versions south of the Tesla Roadster’s $101k base price. That, along with the $120k-ish R8 E-tron are the two jaws of Audi’s Tesla-munching jaws.

And then there’s one of the biggest challenges for Tesla: sales and service. Audi has plenty of dealerships and service employees… Tesla has boutiques in several jet-set shopping districts. Where would you buy an electric sportscar? Besides, if you don’t want a silly “e-tron” but you like the car, they’ll probably sell you a 335 hp five-cylinder turbo version for less money. And then talk you into an electric A2 for guilt-free commuting. Or talk you up to a crazed R8-based E-tron sportscar, which will start $10k-$20k higher than the Tesla.

The R8 E-tron is supposed to be available in 2012, when Tesla’s Model S is planned for launch. The R4 E-tron is scheduled for launch one year later, alongside the A2 EV city car. Tesla had planned on ending Roadster production in 2012, but has backed away from any end date for the Roadster allowing it to drive on into this EV sportscar pincer attack. And if Audi is going to attack Tesla’s Roadster from above and below, you know more Germans won’t be far behind. Sure enough, Mercedes has already announced a super-expensive EV version of its SLS AMG, likely heralding more EV sportscars to come. Given the behind-the-scenes politics at Volkswagen, Porsche will probably launch a BlueSport-based EV sometime around the same time as the R4 E-tron as well, if only to keep the upper management feuding.

Which leaves Tesla’s Model S to carry the firm until and unless a joint vehicle with Toyota materializes. And the Model S won’t even be the first luxury four-door EV on the market… unless the Fisker Karma misses another production deadline. The less-affluent (though not much less) early-adopters will already be happily buzzing around in their Leafs, Volts and EV Focii by then, unmoved by the inevitable lease offers tempting them to stretch for a Tesla. And after that, there’s not much market for high-end EVs. Every argument that Tesla might make about the unique abilities of its EV “sports sedan” is countered by the fact that the estimated range for a base price $50k Model S is 160 miles. Plus the Fisker looks better.

I’ve long thought that Tesla could have stayed focused and carved out a unique niche as the 21st Century’s first EV sportcar specialist marque, riding AC Propulsion’s good idea to the status of a new Porsche if they were lucky. Not content with such a marvelous goal, Tesla has now officially lost its chance to establish its brand with (say) a GT and supercar, by letting Audi steal the EV sportscar momentum. And for what? In order to sell twice as many cars at half the price every time it comes out with a new product? To leverage one revolutionary but hardly mass-assembled sportscar into a global business to challenge the OEMs?

Audi gets it. Stadler tells AM und S that “the E-tron label will become as important to us as the Quattro label was to us 30 years ago.” This is exactly the kind of lesson of history that tend to escape start-ups. Audi has had its boots dirty building one of the most successful luxury brands over the past 30 years, and that institutional experience is worth every bit as much as the brand itself.

With its stock public, and its hopes attached to a 2012 EV sports sedan and a tenuous relationship with Toyota, Tesla is shooting the moon. If it doesn’t sell 20,000 Model S sedans by 2013 (for roughly $1b in revenue), Tesla will be toast. After two years of likely losses, Tesla’s stock will be battered down from its frothy precipice by the time the Model S arrives. Which will also be about the time Audi’s two electric E-trons start sinking their teeth into the remains of Tesla’s sportscar business. Sure, the Model S could be a stunning success, but even if it is, Audi will already have small premium EVs ready to go by the time it launches, meaning Tesla has nowhere to run downmarket (where the Leaf, Volt and Focus will already be established).

As much as EVs and California seem to go hand-in-hand, the Golden State’s homegrown hero does not have a happy road ahead of it. Along the way the brand will almost certainly prove a point that the auto industry seems to have to prove at least several times in every generation: ambition doesn’t change the world, focus does.

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36 Comments on “Will Audi Put Tesla Out Of Business?...”

  • avatar

    Hmmm. Tie goes to the runner.

    In Audi’s corner: Musk is an arse and Tesla’s are more like ipods than cars

    In Tesla’s corner: Lots of hollywooders and nerds, more than a few with money, might prefer with iconography of a “Tesla!”

    I can’t think of a company I’d be less inclined to buy a sophisticated expensive car [that is guaranteed to need a crap load of service] from than VW/Audi.

    Oh, wait…only a company building bespoke versions of English one-offs that tosses the only reliable part of the original – the Toyota engine.

    Hard to pick a winner here. For that money I’ll buy 7 Corvette C5’s and keep it under 2.5k rpm on the highway. Will sleep well at night.

  • avatar

    Why not use an EV version of Chicken Tax here? Like, 25% (or higher rate) tax on any EV which is not made in the US of at least 51% local domestic content excluding the battery. And, of course, no purchase subsidies of any kind for such. This may help to shift the manufacturing of EVs to the US while keeping all the environmental consequences of making EV batteries outside.

    • 0 avatar

      History (and theory) show that this is not the most effective way to influence growth in a global economy. Yes, Tesla might benefit in the short-term but consumers should be able to vote with their money on who is the best business without discriminatory taxes and whatnot prodding demand in a specific and possibly inferior direction. That kind of thing can prevent better businesses/products/ideas that may have better long-term effects on the economy, environment, and consumers from being successful or coming to fruition.

    • 0 avatar
      Brian P

      If the USA is going to buy electric cars in volume then they had better be prepared to deal with whatever environmental consequences that they are. It’s not fair to push the environmental consequences into the rest of the world. That has already happened far too many times!

      Anyway, if the goal is to convert a substantial portion of the US fleet to EV’s or EREV’s then there should be absolutely no DISincentives. If Audi and/or Nissan and/or whoever is capable of making and selling (say) 500,000 EV’s in USA in a couple of years and this has the side effect of blowing Tesla into the weeds leaving them as a footnote of history … so be it.

    • 0 avatar

      The battery is the (very) expensive bit in an EV. Body is easier to make in an EV than an ICE and the inside isn’t that interesting.

      51% local content is make work not make (world leading) industry

    • 0 avatar

      History shows that whatever economic theory teaches us may some day lead to a catastrophe; the very recent mortgage/banking crisis is a good example. My take is: one cannot be half-pregnant. Once the US Gov’t decided to alter the market by bailing out GM and Chrysler, why should it adhere to economic teachings and not introduce any discriminatory taxes for the domestic manufacturers to benefit from? Besides, why does the original Chicken Tax still exist? Has this lead to the US being supplied ‘inferior’ trucks?

    • 0 avatar

      I’m pretty sure some of the activities that led to the financial crisis weren’t following economic theory. For instance, would a textbook recommend overextending credit to those who can’t afford it? Probably not.

      As far as your original suggestion is concerned, I would not be surprised to see our government institute something like that, especially, as you noted, how heavily invested they are in the domestic auto industry. (Although, it is important to note that the federal and state governments have invested heavily in foreign automakers as well.) I would, however, be disappointed in such a tax for the same reasons laid out in my first post.

      As far as I know, the chicken tax still exists because no one in Congress has wised up and repealed it. And it has caused problems for domestic automakers. Ford actually assembles the Transit Connect in Turkey but ships it over here with rear seats and windows to avoid the tax. The first thing done to those vans once they get over here is have those windows and seats removed. Ford’s costs associated with importing these vans would probably be significantly reduced if they did not need to go through that trouble. So while we may not be being supplied an inferior product in this case, Ford is allocating resources to working around that tax that could be possibly be better used elsewhere within its business (and as much debt as they are in, they would probably benefit from that).

    • 0 avatar

      History says that during America’s early years tariffs on all imports were in the vicinity of 50%. America prospered.

    • 0 avatar
      John Horner

      Actually, history shows that every country which wanted to develop a strong domestic manufacturing base did so behind protective tariffs. The US, Japan, Korea, China and others all played that game at various times with great success.

    • 0 avatar

      Hello? Anybody heard of the WTO?

      Now pass that joint, please.

    • 0 avatar

      I suspect that China would put a tax on the raw materials required to produce magnets for electric motors. If I were them it would be calculated to be twice the import tax that we put on imported EVs.

      So on a 50K car from China we tax it $12,500 making US customers pay $62,500. On a US made 50K car China would tax the magnets in the motor with $25,000 making it a $75,000 car…

    • 0 avatar

      Yeah, that’s the other issue with high tariffs or tariffs obviously aimed somewhere in particular: Other countries retaliate. We saw this almost a year ago with the tariff on chinese tires. In the end, no one really benefited, even those whom the tariff was supposed to protect.

  • avatar
    healthy skeptic

    “I’ve long thought that Tesla could have stayed focused and carved out a unique niche as the 21st Century’s first EV sportcar specialist marque, riding AC Propulsion’s good idea to the status of a new Porsche if they were lucky.”


    That was their best shot. They should have tried to become a sort of Ferrari of EVs (very exclusive, very upscale, low volume, high profit margins), not the next GM. No hate on Tesla here either, but I really don’t see where they’re going, long term.

  • avatar

    Tesla is building Plug In electric cars in a country that doesn’t have an electrical grid that can handle plug in electric cars.

    Audi is building regular cars, sportscars, supercars and now electric plug in cars as a side hustle… GEE, I WONDER WHO WILL WIN?

  • avatar
    Greg Locock

    healthy skeptic- The problem with that niche is that either they develop the ability to design sportscars, or they have to keep finding donor vehicles. The suppliers of those donors will soon twig that electrifying an existing car is not even half as hard as designing a hybrid, so why give Tesla the kudos?

  • avatar

    I was skeptical about the long term prospects for Tesla, but they had a niche, with their high-end performance Prius product. That no other serious manufacturer was willing to take the plunge (I consider the makers of the Volt 1/2 serious) told me that EV still had a long road before viability.

    Now Audi makes some fine cars. They know about branding. I don’t see how Tesla can compete.

  • avatar

    I think its been very clear from the beginning that Tesla won’t have EV exclusivity.

    Every carmaker is putting an EV in their lineup, not just Audi. The bigger question is; ‘how big is the EV market to begin with’? As it stands, given the capacity and breadth of investments, Nissan and GM seem to be the most invested in EV then any other car maker.

    All this Audi talk is cheap without the money, factory, and supply chain to back it up. Neither the Tesla Roadster nor the poorly named Audi E-tron/étron is going to make any substantial money. Low-volume sports car don’t make money, and basing the success or failure of Tesla on that is an error. The real judgment on Tesla is how profitably they can get the Tesla Model S onto the market.

    Tesla’s main lifeline rests with what Toyota can provide them. If they can provide them with a joint-EV platform that can achieve economies of scale and the tooling and technology to bring a cost effective Model S to market, then they have a fighting chance. But as it currently stands Toyota seem more interested in getting rid of NUMMi then a comprehensive EV strategy.

  • avatar

    There’s a tiny, nano-scale part of me that believed for a pico-second that Tesla had a snowball’s chance in a Phoenix July’s CircleK parking lot.

    Then I analyzed the data, and, more importantly, analyzed the data.

    Tesla makes a DeLorean look like a Chevy Cavalier.

    The management is a joke – Musk? really? The product is neither game-changing, nor even novel. Let alone scalable and sellable at a profitable price point.

    Dreams are great. I’m rather sure we all have them.

    Personally, I’ve got 50:1 that says Pax Mideast is more likely in the next 5 years than Tesla profitability. Or even existence.

    • 0 avatar

      Hi. I just had to comment that I read your exactly-11-years-old comment here and LOL’D hard. Care to comment? Btw, that’s some kick ass resilient snowball there in Phoenix! Musk says hi, and “You have 3 seconds to think of a single other person that could have pulled off the leadership of Tesla to get them to where they are now…3…2…1…ah yes you failed, just like everyone else”.

  • avatar

    The Tesla-Toyota relationship can be viewed in a way similar to how the the large pharma companies use startup companies to develope new pills/technologies. Large Medical companies using a satelite company, ie a startup, One it makes it easier to get tax money, since you use the small startup company as your tax money gopher/vacuum machine. The politicians claim they are helping the little guy not the large multinational corporation behind the curtain. Second by having the small corporation selling/testing the initial technology if things go bad, either the technology doesn’t sell or worse someone dies during the testing phase, its the startup that bits the bullet and goes under, the name of the large multinatinoal doesn’t get associated with failure or bad press. Third if the technology takes off, Toyota acquires Tesla in a feel good story of how the little idea that could succeeded, it appears like Toyota is paying through the nose, when in fact they control Tesla and are only moving their money from their right hand to the left. Audi won’t kill Telsa as they are not even competing on the same playground, to the general public yes, they sell cars but we are talking about large scale multinational corporations making cars is their day job the real business of making money is not always making of the car.
    Last point and one never brought out in the electric car debate, is no company in the US, Japan or Europe will ever own the electric car market. Because he who holds the magic powder in the supply chain has the rest by the balls, that would be China. Take a look at where 95%+ of the key rare earth elements needed for future EV batteries and electronics are mined and processed, that would be China. If you don’t have the ingredients, its hard to make a living as the chef.

  • avatar

    One thought.

    DEC and WANG vs. Microsoft and Apple…

    Just because a company is large and has the resources doesn’t mean it can change to meet the challenges of the future. At it’s peak Wang had 40k employees, DEC had 140k, and both had billions in revenue. Yet, with all that money and all that expertise, when the technology moved on, they weren’t able to make the transition.

    Why should Toyota, GM or VW be any different?

    • 0 avatar
      John Horner

      DEC and Wang were basically one-hit wonders who enjoyed less than a decade in the limelight. Ford has been adapting with the times for over 100 years. VW rose from the ashes of WWII and never looked back.

      To your point, why is IBM still a major global player? They started in 1896.

    • 0 avatar

      Supporting John Horner’s point, look at how adaptive even some of the automotive manufacturers have been: Honda started with motorcycles, BMW with aircraft engines — and Peugeot (founded in the 1700s!) moved from pepper mills through bicycles into car manufacturing.

      The best companies in the world adapt and thrive. Companies like Peugeot — or Nokia, for example — have the capability to reinvent themselves and succeed again and again.

    • 0 avatar

      John, DEC was more than a one hit wonder and lasted beyond one decade. They had numerous successful products (both hardware and software) and they were a major player for multiple decades. Many of DEC’s employees moved on and helped spawn much of the computing industry as we know it today.

      jmo’s analogy is correct. The world was changing and DEC management refused to recognize those changes until it was too late. They definitely had a “too big to fail” attitude and refused to believe their vision of the world was wrong.

      IBM on the other hand was able to make the changes and survive. They also have a huge intellectual property portfolio that I’m sure helped them stay in the game.

  • avatar
    John Horner

    Tucker, Bricklin, Tesla …. a TBT sandwich stretching over decades.

    There hasn’t been a single successful US or European based car company start up in over 70 years. There is no reason to think Tesla will break that pattern. These captain of the universe types have no concept of exactly what is required to design, build, market and support production volumes of automobiles.

    • 0 avatar

      A few exceptions to the 70-year rule: SAAB in 1947 (63 years), SEAT in 1950 (60 years), Dacia in 1966 (44 years). Admittedly none have been a runaway success, but all have mass-produced millions of cars over the years, and survive as marques, though now owned by larger companies.

    • 0 avatar
      DC Bruce


      Saab . . . a success? The company has been on life support from GM for a couple of decades. Following a near-death experience, it is now on life support from a much shallower pocket.

      SEAT. . . held a legal monopoly in automobile manufacturing in Spain, thanks the to fascist Franco government that stayed in power from before World War 2 until El Caudillo died in 1975. In the 1950s, SEAT built copies of Fiats, under license from that Italian company. I know; I lived in Spain 1958-1960. I don’t know when VW A.G. acquired the company, but I believe even this site has reported that it’s a candidate for shut-down, and builds variants of VW products anyway.

      I think John’s point is valid. Like most Silicon Valley entrepreneurs, Elon Musk succeeded by creating a new product market — not by busting into an existing one. His possible success in Space-X, just illustrates the point. Only now is the a market — as opposed to a government monopoly — in the satellite launch business beginning to emerge. Sure, US launch vehicles were made by a variety of private companies — all working under government contracts and to government specifications.

      Automobiles are very much a mature market. An electric car is just an automobile with an exotic propulsion system. The idea that a startup can succeed against all of the established players at being anything more than a niche supplier, just doesn’t walk.

      Frankly, the original Tesla plan — be a limited supplier of exotics — made much more sense. Essentially, Tesla was going to put an exotic power train into an existing car, purchased from another supplier. Either it would be a nice, profitable little business or — the original investors’ more likely goal — once it demonstrated its viability as a niche product, it would be bought up by an established player . . . and the original investors would be cashed out at a handsome profit. That’s the basic Silicon Valley VC business plan that’s been in place for decades: start a company, get it viable and either take it public to get cashed out, or sell it to a bigger player.

      I think what happened with Tesla, is that neither “classic” scenario appeared imminent, so the company re-tooled itself in order to get a bunch of government money . . . which, I imagine, will go straight down the drain.

  • avatar

    I wonder if you could put a small block Chevy into the guts of a Tesla? They’ll be dirt cheap once the market realizes the folly.

  • avatar
    Dr Lemming

    Sure, Tesla’s prospects aren’t great. But I don’t think Audi’s presence alone will be Tesla’s death. It all depends on how big the market becomes and how well Tesla carves out a viable niche.

  • avatar

    Tesla has not made a car yet… they are just sticking batteries in a Lotus.

    Audi could crush them instantly if they really wanted too, just throw some batteries in a TT and call it a day. Tesla’s current (and only) claim to fame is trying something new – an eco-sports car. Like others have said if the model S (even with Toyota’s help) doesn’t do everything they claim plus return a nice profit, Tesla will be dead.

  • avatar

    The grid has a massive amount of excess capacity to handle EVs… as long as they don’t all simultaneously plug in at 4PM some August afternoon.

    EVs sounds like a swell idea, except the supporting grid recharge system is still many yrs lagging behind.

    It remind me of the late great Rodney Dangerfield’s joke.

    ” The town is so small when I plug my electric shaver in, the city’s trolley bus stopped running!”

    Just the recent heat waves in Ontario, some places got Brown out or even Black outs as every folks tries to turn on their air conditioning.

    Will all the coal fire , gas gen, Three mile Island, Chernobl Gens can support the demand?
    Is no different than the Hydrogen cars, where do u get fuel?

    Tesla hasn’t sold many cars to this date. Is not the same case as David & Goliath.

    Toyota just want someone to take over Nummi, besides who else would take over?
    Toyo is hedging incase it may fly.

    • 0 avatar

      The grid is designed to support peak load occuring on just a few days either in the dead of winter or the scorching summer depending on the area. Here in Atlanta we see a peak generally on some August afternoon weekday around 4 PM as business run equipment and home use air conditioning. It’s like a highway system built to handle one large rish hour per year. The rest of the hours in the year, there is excess capacity.

      As long as electric vehicles charge at night -off peak- there is ample capacity to meet charging requirements of a large percentage all miles traveled. (I have seen estimates that 80% of all small vehicle miles driven could be powered from the existing grid with existing generation capacity)…

      I suspect that in your Canadian example, the problems that utilities had meeting demand occured during the heat of the day… again if wehicles charge at night, there should be enough capacity to meet a large portion of all miles driven.

      I’m not clear as to what your point is when you ask a question about generation. Coal fired gen is very economical and the US has plenty of coal. Gas is massively plentiful and puts out half the CO2 if you are of the opinion that carbon is evil, that should make you happy… Three Mile Island is not running anymore. There are no graphite reactors on this side of the planet. If you are asking do we have enough capacity in the US and Canada; yes we do.

      The point on hydrogen is not clear. H2 is not found in nature on our planet, it’s made… so its a means of storing energy rather than a fuel. Similar to a battery…

  • avatar

    The big push for electric cars was started by Martin Eberhard, co-founder of Tesla.

    Martin had as a stated goal the advancement of the electric car idea. I don’t think electric cars would be anywhere near where they are today without his brilliant PR push as public head of Tesla.

    He and Elon Musk got into a fight, and with what I know of the character of the two men, I would stand by Martin as having the better argument.

    Now Martin is working for a prosperous company on exactly what he is most qualified to do, with excellent job security and probably significantly more money than he ever could have made at Tesla.

    Seems to me he couldn’t have done better if he planned it all out in advance.

    Or did he?

    I’m very happy for him, you understand. And amused. It’s nice to see a good man finishing first, for a change.


  • avatar

    These comments made 10 years ago did not age well at all :D A complete reversal of the truth nowadays

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