Tesla Challenges BMW on Home Turf as Germans Go Green

Tesla Challenges BMW on Home Turf as Germans Go Green

Tesla Motors Inc. (TSLA), the electric-vehicle maker led by billionaire Elon Musk, is pushing beyond the friendly confines of California to take on the world’s biggest luxury-car brands in their home market. Tesla will have six stores in Germany after adding locations in the coming months in Berlin and Stuttgart, home to Mercedes-Benz parent Daimler AG. The start-up already has sales centers in Frankfurt, Dusseldorf, Hamburg and Munich, Bayerische Motoren Werke AG (BMW)’s hometown.Tesla is hitting the autobahn just as the German goliaths start selling their own electrics from dealer networks with hundreds of stores. Musk will also need to win over buyers who traditionally have been loyal to homegrown brands.

“The European home turf belongs to the likes of Daimler, BMW and Audi,” said Bryan Batista, Tesla’s European sales director. “We’re confident that we have a product that stacks up very well.”

At the International Auto Show in Frankfurt this week, BMW presented its i8 plug-in hybrid supercar and is featuring the battery-powered i3 city car. Volkswagen AG (VOW)’s Audi debuted a plug-in hybrid version of the A3 hatchback that can travel 50 kilometers (31 miles) on electric power and VW’s Porsche brand unveiled the $845,000 918 Spyder hybrid. Mercedes displayed an electric version of the SLS gull-wing sports car and plans to roll out an electric B-Class compact next year.

No Legacy

The German offerings will test the sustainability of Tesla’s buzz. The Palo Alto, California-based company’s share price has surged almost fivefold this year, giving it a market value of $20.1 billion — more than a quarter that of BMW, which this year will manufacture almost 90 times as many cars. Tesla also trades at 267 times estimated earnings, compared with 10 times for BMW, according to data compiled by Bloomberg.

Tesla says its newcomer status is an advantage as it expands across Europe. The company plans to open 15 stores and service centers in the region by yearend, bringing its total to more than 20.

At traditional carmakers, “there’s been a reluctance to change, to leave internal combustion engine technology, which has been and still is the bread and butter of these companies,” Batista said. “We don’t have that legacy.”

Tesla’s entrance has caught the Germans’ attention. Daimler, which owns a 4 percent stake in the company, according to data compiled by Bloomberg, will use Tesla’s batteries and motors for the electric B-Class.

VW bought three Tesla cars to examine how they worked. Axle positioning and battery- management systems impressed the carmaker’s engineers, Chief Executive Officer Martin Winterkorn said in interview at the Frankfurt auto show.

Fold-Out Seats

The Model S is “made intelligently,” Winterkorn said. The vehicles deserve respect “especially considering that they don’t have vast experience in building cars.”

Tesla’s store in Frankfurt, near the city’s famed opera house, is a small, low-ceilinged boutique displaying the chassis of a Model S in the window to show the battery frame. Color and trim options adorn the back wall, where a large screen shows the model. There’s no car in the showroom, a sharp contrast to the sprawling dealerships of BMW, Mercedes and Audi, where dozens of autos crowd the aisles and lots.

The Model S is a low-slung four-door sedan that seats up to seven, including two fold-out rear-facing seats for children. It accelerates to 100 kilometers (62 miles) per hour in 6.2 seconds, matching the performance of the gasoline-powered base version of the BMW 5-Series sedan.

The Tesla costs 71,400 euros, versus 39,900 euros for the cheapest 5-Series. BMW’s smaller i3, which seats four and is about the size of the company’s Mini hatchback, will start just under 35,000 euros when it hits showrooms in November.

Loaner BMW

Electric-car makers must combat customer worries that their vehicles will run out of battery power before they reach their destination. To ease that, BMW is offering buyers of the i3 — with a range of as much as 160 kilometers — the option of a conventional-car loaner for longer trips. Tesla offers bigger power packs that can extend the range to as far as 480 kilometers per charge, enough to drive from Munich to Frankfurt.

Tesla is also trying to ensure its customers can always plug in. In Norway, the company opened a network of fast-charging stations, covering the main highways, where Tesla-owners can recharge a Model S to 50 percent capacity in about 20 minutes for free.

Carlos Ghosn

Tesla and BMW have both teamed up with a Munich start-up company called The Mobility House to install home and public charging stations.

Unlike its German rivals, Tesla is totally dependent on increased demand for electrics, a segment that has failed to live up to expectations. Carlos Ghosn — the chief executive officer of Renault SA (RNO) and Nissan, the global leaders in electrics — said in a Bloomberg interview last week that the two companies won’t reach a 2016 target of selling a cumulative total of 1.5 million electric vehicles.

“Tesla has a positive image but is an absolute niche player,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. The company “still has to prove itself.”

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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