Mercedes Benz v Tesla — Game On Electric SUVs

Big Red Car here on a gray Texas day, y’all. Going to be a nice cool one.

So, the Big Red Car is a muscle car, meaning I drink regular gasoline, put out the torque, and sip a bit of 10W40 (The Boss has me on an “old guy” synthetic oil diet. Son-of-a-bitch! I liked the old fashioned oil, but I admit my joints feel better with the old guy stuff. Just as long as he stays away from the Blue Emu.).

So, Mercedes announced it is going to spend $1,000,000,000 to get into the electric SUV business. Hello, America!

Electric Mercedes

Mercedes will invest $1,000,000,000 in Tuscaloosa, Alabama to make their first electric SUV. It will hit the roads in early 2020 (some say this is the “safe” date and it will begin deliveries a year earlier than that date). That is three years from today, so nobody will be getting one in time for this Christmas.

It is worthy of mention that Mercedes previously announced a $1,300,000,000 expansion of the same Tuscaloosa manufacturing plant in 2015. That expansion included a new car body manufacturing plant, upgraded logistics capabilities, and new computer systems. All of those improvements are either finished or approaching completion. They will all support the new electric SUV initiative, so the cumulative investment in Tuscaloosa is enormous.

The latest initiative will create 600 jobs (added to a base of 3,700 existing jobs).

The electric car thing is not that new for Mercedes which has plants in Europe and China as we chat. When you think about “plants” you have to think about auto production plants and batteries. The power for an electric car comes from its batteries. Those batteries are critical.

Mercedes will now have five battery plants worldwide. The new one in Tuscaloosa will be 1,000,000 SF and will make batteries for other vehicles not just the locally produced SUVs.

In earlier vehicles, electric vehicles, Mercedes was able to deliver 400 horsepower with more than 500 pound-feet of torque. For those car folk out there, you recognize those are big numbers. The US version, the SUV, will be slightly less powerful with an eye toward delivering a range in excess of any other electric vehicle. Whisper numbers are 400 miles between charges.

Mercedes has previously made some grand announcements as to how it sees the future and they see the future being electric.

Tesla

Tesla is the crown prince of electric cars. It is a brand name and is generally conceded to have first mover status. Why not?

Tesla currently offers a Model X SUV which one can buy today. It has a price tag of about $145,000, placing it in a rarefied point in the market. It has different battery options from 60-100 kwh, which translates into range between recharges.

Tesla is driven by Elon Musk, a soon-to-be legendary entrepreneur. It retains that scrappy entrepreneurial spirit. That thumb in the eye of the American car makers belongs to Tesla with its gigantic market cap.

The presence of gobs of subsidies has driven Tesla sales. All of that stops shortly when Tesla hits the 200,000 car threshold. No more subsidies.

Tesla has tried to create a direct sales organization, but has run into the political buzz saw called the American Auto Industry. Huge problem. Huge unsolved problem.

Game on, Big Red Car?

Tesla is the scrappy, first mover with the great, subsidized cars driven by the magic entrepreneur. They opened the door to the future. Right now, electric cars command a 0.5% market share of all automobiles sold in the US.

Mercedes Benz is the legendary purveyor of high quality, expensive, German engineered vehicles of luxurious heirloom cachet. MB was founded in 1926. Did I mention they are a German company?

[Fun facts: BMW 1916, Audi 1909, Porsche 1931, Volkswagen 1937.]

In announcing their new SUV initiative, Mercedes laid out several snippy points:

 1. “Anything Tesla can do, we can do better.” [Imagine that statement flavored with a German accent, a set of pince-nez nose clipper bifocals, a long nose, and gray hair. You get the picture?]

 2. Mercedes believes it can produce batteries cheaper than Tesla while delivering superior range.

Part of the battery challenge is ease and speed of recharge. Mercedes whispers it has a new, faster recharge technology.

 3. Mercedes crows that it can, on a pound-for-pound basis, access superior manufacturing and procurement costs given its substantially larger size.

They brag they can produce a cheaper car because they are a better, more seasoned manufacturer with market share and financial clout. Old fashioned buying power? [Seems to be true, also, but they come across as a little full of themselves.]

Last year Tesla produced 80,000 vehicles, while Mercedes produced 310,000 vehicles in Tuscaloosa alone. The Tuscaloosa plant has been operating for 20 years and is a stable operation with an excellent, non-union work force.

 4. With 3,700 workers already employed in Tuscaloosa (non-union) and 600 more to be added, Mercedes boasts that it can ramp up and sustain high levels of production immediately.

They point out that the plant is already producing more than 310,000 vehicles, so capacity is not a challenge.

 5. Mercedes has an enormous database of satisfied customers garnered over the last 70 years.

They believe they can sell cars to their existing customer base as they replace their existing inventory of MBs and they can sell them to the children of their customers. Makes sense.

 6. Mercedes has a nationwide network of Mercedes dealers and they will train their existing dealership network to both sell and service their electric cars.

This is an enormous advantage as Tesla does not have either a nationwide network of dealers nor a maintenance strategy.

 7. While Tesla has been around for 14 years, the penetration of electric cars is infinitesimal.

Mercedes says, “The game has just begun. We are in the first minute of the first inning. We will crush Tesla.” [OK, I added the “We will crush Tesla.” shtick, but you can feel them saying that, right? Mercedes has put a bulls-eye on Tesla.]

 8. Mercedes has let it be known that it will use its superior financial muscle to force Tesla to compete on the balance sheet. Mercedes can afford to stock inventory and to fill showrooms with product because of that balance sheet strength.

Mercedes can afford to take an Amazon approach to initial pricing to capture marketshare — again, we are at 0.5% of all cars are electric in 2016. There is a huge market to carve up.

 9. German engineering. Nothing more to say about that. German engineering.

Bottom line it, Big Red Car

Bottom line, dear reader, it is going to get real for Tesla as its Model 3 production challenge stretches it to the limit, on the heels of which Mercedes is coming and they are not laughing.

Game, set, match — Mercedes Benz.

OK, that’s a little dramatic. It is hard to see how items #1-9, above, don’t have an impact on the contest. I would have to favor Mercedes at the finish line fifteen years hence. Hang onto that Tesla as it may become a valuable collectible like a Delorian.

And, dear reader, there you have it. But, what the Hell do I really know anyway? I’m just a Big Red Car. Great weekend to y’all. Call someone who needs a call from a friend. That’s you, pal.

This is what a REAL car looks like, y’all. Screw electric cars. Let’s go for a ride in the Hill Country and let that wind part your hair. Come on!

 

 

 

 

  • Adam Sher

    It’s not just M-B. Porsche building competitive electric cars and also has balance sheet superiority. Audi has an electric car in the entry level luxury segment with its A3 e-tron. In addition, all three of these brands produce electric-hybrids, which comes with the dual benefit of not being solely reliant on batteries, time, and a charging network. If Cadillac would make a CTS-V electric, (or Ford an electric Shelby) then you’d have your ‘MURICAN electric muscle. Other than public money, how much better is the outlook for Tesla than the former Fisker (Fisker Karma)?

  • SFG

    I was at a presentation last week where Ford and GM were compared to Tesla. F and GM were “car companies”. TSLA was “a technology company”.

    Yet, TSLA’s main products are low volume production automobiles that lose a shitload of money. And the technology is still not magical yet either, as the range is still too low and charge times still too high.

    Germans are smart as hell and can build things like no other. Yet, they have a storied history of putting out legions of over-priced and under engineered cars with a lot of problems. And they still lead the pack in depreciation and maintenance costs.

    Maybe I’m an old fart now, but why the hell out think matters with high priced status cars when the jap 25k class of automobile is pretty much on par with what the Germans offer for 60k. Has anyone seen the 2018 Honda Accord?

    Once the world is truly ready to buy electric cars, so that the manufactures can make good money, the “car companies” will pile in and destroy TSLA. Toyota will seek and destroy!

    I was overly bearish about Bezos and admit that. But Musk better pull some more (profitable) rabbits out of his magical hat soon, or else.

    • Adam Sher

      Yes.

    • Adam Sher

      Also, I think that mainstream consumers want to buy a car from a car company, not a technology company. This feeling occurs in other industries as well. The bias is that a technology company will ignore the core competencies that we take for granted with regular cars such as large network of branded and off-brand repair shops (i.e. dealerships and indies). I am concerned that Tesla’s are built planned obsolescence. I have no evidence to back this up but my only points of comparison are with all of the other software that I use (don’t forget how important OTA updates are for Tesla) that operate with hardware that feels like it is meant to expire (cell phones, laptops, smart watches).

      • SFG

        Good point. What just might be gone with the TSLA experience is hanging onto the car for a long time! Humans bond with cars. They are not cell phones.

        • Adam Sher

          Conversely, OTA updates could create a more personalized car by being able to self-update. In other words, Tesla could use its software to be the ultimate version of BMW’s i-drive. i-drive is meant to allow the owner to customer every part of the car, but it was mostly executed poorly and most people ignored it.

    • sigmaalgebra

      > I was overly bearish about Bezos

      Maybe not: When Amazon was just a book and CD music store, there was no chance Amazon could be anything like it is now.

      Why? Internet data rate! Moore’s Law. Similar drop in the price per GB of disk space.

      Did you forget or were you born in this century? Naw, neither: You remember those days when Web sites cut way back on images because the Internet data rate — server side, backbone, last mile — was too darned slow to send lots of pictures.

      So, now what does Amazon do? Sure — they send more pictures than Hollywood, Kodak, and Nikon all combined! Secret: Super big growth — explosion really — in Internet data rate. Now I get 60 Mbps download, and JLM down there in TX gets GbE.

      And, for Moore’s law, etc., fill that in, too.

      When Bezos was just books and CDs, I don’t believe that anyone with big bucks to invest really believed in the current Internet data rates.

      Or, really, the current results of Moore’s law: My current computer I plugged together about 10 years ago has a single core, 32 bit processor with a 1.8 GHz clock that sold for $100+. Now can get an 8 core, 64 bit processor with a 4.0 GHz clock for $125. Let’s get the ratio on that (assume my old processor went for $125, too):

      (4.0 / 1.8) * (64 / 32 ) * ( 8 / 1 ) * (125 / 125 ) = 35.55

      Disk space prices likely fell even more.

      Of course, my (64 / 32 ) smell worse than week old fish on the ground in Austin because it really should be something more like

      (2^64 / 2^32) = 2^32 = 4,294,967,296

      Bezos got really lucky! But he did really well with his luck!

      • SFG

        Great points! Yes, he did get really lucky and was smart enough to exploit every bit of edge from any servings of luck. Back in the day pretty much everyone thought Bezos nuts. Now, everyone thinks Musk is a God who can do no wrong. All of the deficit spending by TSLA makes “perfect sense”. TSLA is a tulip bubble and so few can see it. He still may get really lucky and pull it off to profitability, but the odds are that he won’t. Personally, I don’t want a 17″ monitor in my car either. lol. Fad.

        • JLM

          .
          In the land of the blind, the one eyes jack reigns supreme.

          Problem is that Mercedes (and others) are not blind.

          MB knows the luxury car market, has a bunch of customers, has brand loyalty, has a dealer network, has a maintenance network, has an after market parts following, has an “out of warranty” maintenance network — about to get real for Tesla.

          MB can afford to put an “Amazon price margin” war on Tesla. Tesla is fragile financially and has to find a way to absorb meaningful losses until it can become profitable.

          Going to be a tough row. Tesla may be the best short on the planet.

          Just saying.

          BRC
          http://www.themusingsofthebigredcar.com

        • sigmaalgebra

          For Musk, IMHO his biggie problem is the US Federal Government. Yup, the Feds.

          And how could that be, with the Feds long so nice to Elon? How many billions did the Feds give Elon? Uh, to “save the planet”. I mean, who wants to destroy the planet? Isn’t saving the planet worth it?

          But now the Feds are about to tell Elon either “Time to grow up, make your own way.” or “We don’t love you anymore.”. Cruel. SO cruel. How could the Feds be so CRUEL?

          So, Elon flies around in, what, I’m guessing here, a private jet screaming “Tesla is saving the world!”.

          Some of this is really old stuff. There’s a line in Lawrence of Arabia about newsies: “You want your story told, and I desperately want a story to tell!”.

          So, right, just now Bezos is the old news, and Musk is the new news. “And this, too, shall pass.”

          Then Elon, like Bezos before him, will be given a black hat, become a media villain, and pass his white hat to the next media hero (or heroine as the case may be).

  • sigmaalgebra

    Electric cars have some potential, e.g., many fewer moving parts. To replace BRC, charging time is a biggie and will remain so for a lot of people (depending on how they use their car).

    The biggie is that it stands to take hours to recharge a battery but can fill a 20 gallon tank of gasoline in just minutes.

    Why the hours? (A) No matter how much power is available in the power source for the charging, batteries don’t like to be charged quickly. One reason is that batteries have internal resistance so that the charging, running current through the battery, heats the battery. So, if charge too fast, then can get the battery too hot. (B) Charging the battery of an electric 4000+ car quickly would take a very powerful electric source. E.g., with the usual US house grid connection of 230 V at 100 A, we’re talking charging time nearly all night.

    One solution is to use a capacitor instead of a battery. Can charge/discharge a capacitor right away, e.g., maybe use it to power an electric rail gun (James Bond car?). Texas company EEStor since 2008 or so has been promising a capacitor for cars that really would cause electric cars to blow away BRC-like cars. There is a table at

    https://en.wikipedia.org/wiki/EEStor

    that shows the overwhelming advantages. Problem is, EEStor is late nearly 10 years with a demo.

    For me, instead of an electric car based on lithium ion batteries, e.g., Tesla, I’d still like BRC era cars but updated with (A) much better corrosion resistance, (B) current version of the Chevy small block engine or a good, modern version of an all-aluminum version of the Chevy big block engine (an all-aluminum big block, right, with iron cylinder liners, can be lighter than an all cast-iron small block, and the big block can go to at least 572 cubic inches of displacement), (C) modern brakes, (D) much more rugged suspension, and (E) much more rugged otherwise.

    I don’t want a luxury car, and that is because the luxury stuff wears out too fast and doing all the maintenance takes away all the sense of “luxury”. Instead, I want a car to be as rugged as a light truck good for plowing snow and hauling bricks, lumber, sacks of cement, hogs, etc., a car where can clean the interior with a garden hose or pressure washer, where can easily maintain all the parts and pieces, e.g., what’s in the dashboard. Net, I don’t want the headaches of maintenance; luxury cars are not nearly rugged enough and, thus, need too much maintenance.

    I can’t see piston engines going away anytime soon. E.g., we will continue to see Diesel engines for many applications.

    There is a hybrid possibility: Have a gas turbine engine. They can have many fewer moving parts than a piston engine. With, say, turbines, maybe centrifugal, maybe can get the cost quite low. The old problem with a gas turbine is that the fuel efficiency was awful except at full throttle. Okay, but for charging the battery, just use the gas turbine at full throttle.

    For a German with pince-nez nose clipper glasses, maybe the main, famous example was General Franz Halder as at

    https://upload.wikimedia.org/wikipedia/commons/5/5b/Franz_Halder.png

  • JLM

    .
    What happens in the Tesla v Mercedes SUV contest? Oh, you didn’t know that MB just announced a $1B investment (on the heels of a $1.3B investment) in Tuscaloosa, Alabama to make electric SUVs?

    http://themusingsofthebigredcar.com/mercedes-benz-v-tesla-game-electric-suvs/

    Read about it here.

    BRC
    http://www.themusingsofthebigredcar.com