Audi Holds California E-Tron Party as It Takes Aim at Tesla

(Bloomberg) -- Look out, Tesla: The Germans are finally coming.

Audi unveiled the E-Tron, a battery-powered crossover that’s due to hit showrooms later this year, during a big Monday night bash in Tesla Inc.’s backyard. Mercedes-Benz revealed its own electric crossover earlier this month, and BMW showed off another Tesla-fighting concept model on Sunday.

Though headlines deem every new electric offering a "Tesla Killer" and automakers around the world have been coveting Tesla’s stock valuation and clean-car reputation for years, the series of events shows Elon Musk’s company is on the verge of seeing more serious competition from the leaders in automotive luxury.

Audi’s first fully electric auto will be made in Brussels and will arrive in the U.S. during the second quarter of 2019, the company said in an emailed statement. The five-seater starts at $74,800 and will qualify for the $7,500 federal tax credit. Audi unveiled the E-Tron at the site of an old Ford plant in Richmond, California, across the bay from San Francisco and roughly 35 miles north of Tesla’s sole auto assembly plant in Fremont.

“Audi is going electric and this is our our first major step,” Scott Keogh, president of Audi of America, said in an interview Monday before the unveiling. “We feel we have an extremely compelling product.”

Audi chose the San Francisco area for the E-Tron’s global debut for several reasons: California is the biggest luxury auto market, the tech industry is prominent, and Governor Jerry Brown just hosted a Global Climate Action Summit. About 1,600 people attended the Audi show, including dealers, journalists and employees flying in for it. The event began with a boat ride from San Francisco and ended with strobe lights, pounding music and hundreds of mobile phones taking pictures of the new car.

“California is a big, impactful market,” Keogh said. “Electrification, the tech industry, the ecosystem is all here. It’s the right place to do it.”

Diesel Distraction

Audi, Volkswagen AG’s premium brand, shifted the presentation to Tesla’s backyard after initial plans for a fete in Brussels at the end of August ran the risk of being overshadowed by the surprise arrest of suspended Chief Executive Officer Rupert Stadler over allegations he may have tampered with evidence related to the parent company’s diesel scandal. VW’s supervisory board was to discuss Stadler’s future at the manufacturer on Monday, according to a Spiegel report. The 55-year-old remains in custody, as he has been since June. Bram Schot, Audi’s interim CEO, presided over the E-Tron event.

"We are merging the new world of electric mobility with 100 years of experience in manufacturing," Schot said.

Stadler’s downfall marked the culmination of what has been a tumultuous stretch for Audi, VW group’s largest profit contributor. Audi, which temporarily held the No. 2 spot some years ago in terms of global sales, lost ground to German luxury-car rivals Mercedes and BMW both in terms of deliveries and profit margins.

The E-Tron, whose anticipated range in the U.S. is expected to be about 225 miles per charge, offers an opportunity for a fresh start at Audi if the model proves popular with customers. The marque plans to add two more battery-powered vehicles by 2020. While the E-Tron is largely based on standalone technology, VW is pushing for deeper cooperation with sister brand Porsche, especially in the area of electric-car development, to share costs.

Audi said it plans to introduce a total of 12 fully electric vehicles in its main markets by 2025. By then, these models and Audi’s hybrids will account for about a third of global deliveries, according to a statement. Audi has about 300 dealers in the U.S.

"Dealers were the target audience of this event," said Chelsea Sexton, an electric vehicle marketing consultant, at the show. "The idea is to get Audi dealers enthusiastic about the product."

The E-Tron crossover will be flanked by a Sportback variant next year, followed by a slew of other vehicles covering all major segments from compact vehicles to upscale limousines. A new design concept, the E-Tron GT, is slated to be unveiled at the Los Angeles auto show in November.

Slow Strike

Despite Audi’s ambitions -- and those of Porsche, BMW, Mercedes-Benz and others -- Tesla faces little direct competition before 2020, Toni Sacconaghi, an analyst with Sanford C. Bernstein Co., wrote in a report Monday.

Luxury electric vehicles entering the market now are mostly priced like Tesla’s Model S sedan and Model X crossover. But Musk’s auto business is increasingly moving toward the mass-luxury market, first with its smaller Model 3 sedan and eventually with the Model Y crossover.

With General Motors Co.’s Chevrolet Bolt lacking a luxury nameplate, the Model 3’s first true rival will be the Polestar 2 sedan that Volvo Cars is planning for 2020, Sacconaghi said in a note to clients.

“Let’s make this clear: There is no actual flood of competition coming,” he said.

While the next couple of years may be less of a fight than Tesla bears anticipate, Audi as a brand represents a legitimate foe, according to Musk’s past statements. In 2012, he dismissed comparisons to Nissan Motor Co.’s Leaf, an inexpensive electric model intended to sell in the hundreds of thousands.

“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 who knows, BMW 5 Series, 7 Series,” Musk said on a conference call. “That really tends to be the basis of comparison.”

To contact the reporters on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net;Dana Hull in San Francisco at dhull12@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Jamie Butters, Ville Heiskanen

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