BMW, Cadillac Aim to Pull Plug on Tesla With Pricey New Cars

BMW, Cadillac Aim to Pull Plug on Tesla With Pricey New Cars

JOSEPH B. WHITE

Nov. 20, 2013 6:25 p.m. ET

LOS ANGELES— Tesla Motors Inc. TSLA -3.95% is about to get deep pocketed rivals in the luxury electric luxury car market after largely having the business to itself since the 2012 launch of the Model S sedan. BMW AG BMW.XE +0.31% , General Motors Co. GM -0.84% ‘s Cadillac and VolkswagenAG VOW3.XE +0.08% ‘s Porsche and Audi NSU.XE +0.30% brands are among the luxury brands using this week’s Los Angeles Auto Show to promote new plug-in models aimed at affluent, eco-conscious Californians who make up the heart of Tesla’s buyers.While models such as the BMW i3 and i8, the Cadillac ELR or Porsche’s plug-in Panamera sedan offer different propulsion technology from the Tesla Model S and different body styles, they are all cars that get much of their energy from the electric grid instead of a gasoline pump.

So far, electric cars aimed at mass market consumers have sold in relatively low volumes, although the head of Nissan Motor Co. 7201.TO +0.43% ‘s U.S. sales arm said Tuesday that demand for the Nissan Leaf electric car has improved enough to justify adding production capacity. Still, electric cars have made up about 1% of U.S. light vehicle sales this year.

One reason electric cars are a tough sell to budget-conscious consumers is the high cost of lithium-ion batteries, and the limited driving range of cars like the Leaf. However, Tesla so far can’t keep up with demand for its $70,000 and up Model S with an 85 kilowatt-hour battery, which has a driving range rated at 265 miles by the federal government.

Wealthy car buyers “can afford to have another vehicle” to deal with long road trips, says Devin Lindsay, an analyst with forecasting company IHS Inc. As more auto makers follow Tesla’s move to make electric cars a luxury lifestyle accessory, “buyers are going to have a lot of choice,” Mr. Lindsay says.

Established luxury brands are muscling on to Tesla’s turf in part because government policies are forcing them to, and in part because they see Mr. Musk peeling away influential trend setters they don’t want to lose.

“If you look at Audi buyers, they are interested in high tech, they are young, progressive and affluent,” says Scott Keogh, head of Audi’s U.S. arm. That is why Audi is promoting the A3 etron plug-in hybrid model at the Los Angeles show, ahead of its early 2015 launch.

Audi eventually will have an all-electric model, Mr. Keogh says, though he won’t say when. Rudolf Krebs, the VW Group executive Vice President in charge of electric vehicle programs said Audi will get plug in hybrid versions of its A6, Q7 and A8 models next year as part of a broader VW Group strategy to roll out 40 plugin hybrid or battery electric models over the next several years.

GM’s ELR is a luxury model that borrows its basic propulsion system from the plug-in Chevrolet Volt but at about $76,000 has a starting price more than $30,000 higher. Mark Reuss, head of GM’s North American operations, says the ELR “will inevitably be compared to the Model S,” but GM will focus on its combination of a gasoline-fueled engine and battery power that gives it a longer driving range than a Tesla.

“It’s a dramatic design statement,” Mr. Reuss says. “Which Cadillac really needs right now.”

BMW is highlighting the i8 plug-in hybrid sports car at the LA show, The car, with a starting price above $135,000, has a carbon fiber body architecture and is propelled by electric motors in the front, and a three-cylinder gasoline engine in the back. BMW is also launching early next year a second electric model, the BMW i3, which is a small “city car” that will start at about $40,000 in the U.S.

“California plays a pivotal role in this technology,” says Ian Robertson, BMW’s global sales and marketing chief. The state’s mandates requiring auto makers to sell more electric or plug-in vehicles are a major factor in auto makers’ decisions to launch such vehicles. But there is also consumer demand, Mr. Robertson says.

Since BMW began offering test drives in the i3, about 100,000 people have signed up world-wide, including about 45,000 in the U.S., Mr. Robertson said. As for the i8, he said, “we are sold out for the whole of next year.”

What impact the arrival over the next year of new luxury plug-ins will have on Tesla will depend a lot on whether the new entries expand the segment, or merely cut more slices from a same-sized pie.

Tesla Chief Executive Elon Musk has assured analysts he isn’t concerned. Tesla didn’t have a display at the LA Auto Show this year, a spokeswoman said. Mr. Musk has said the company doesn’t need to try to generate more demand right now.

“I think there’s a huge amount of untapped demand in North America,” he said, regarding his company’s outlook. Mr. Musk has said he expects Tesla can eventually sell 500,000 cars a year.

“I really do encourage other manufacturers to bring electric cars to market,” Mr. Musk told analysts in a conference call earlier this year. “They need to bring it to market and then keep innovating and improving and making better and better electric cars.”