Volvo Undercuts Tesla's Autopilot Price By Almost 50%

| About: Tesla Motors (TSLA)

Summary

Volvo makes Autopilot (“Pilot Assist”) standard in its new flagship sedan, and as a $2,900 option in its flagship SUV.

Volvo’s prices are approximately half of Tesla’s $93,200 for an S90D with Autopilot. Tesla also charges $6,000 more for its equivalent SUV.

I tested Volvo’s Pilot Assist system and it has some similarities with Tesla’s Autopilot.

However, I found none of these systems - Tesla, Volvo or for that matter Mercedes - to be appealing.

Volvo sold 10x as many cars as Tesla in 2015, and in 2016, the XC90 SUV model alone has matched ALL of Tesla’s U.S. sales.

One of the most interesting ways Tesla (NASDAQ:TSLA) has tried to differentiate itself, is by offering so-called Autopilot. Basically, when you're on the freeway where there aren't stop signs or red lights, you just leave the car and it steers, accelerates, and brakes by itself.

How much does a Tesla with Autopilot cost?

You can get the Tesla S60 with Autopilot for a starting price, without other options, for $69,700. That doesn't include things such as Sirius XM (NASDAQ:SIRI) and leather seats, and the range is only 210 miles. You can pay an extra $8,500 in order to bump up the range to 249 miles.

Clearly incapable of competing with a regular car's range of over 300 miles in most cases - not to mention refueling availability and speed - a comparison based on the Tesla S60 would not be fair. You really need to compare based on the 90D, which has a range of 294 miles - still less than a normal car.

And that Tesla 90D with Autopilot starts at $93,200 - still without essentials such as Sirius XM and leather seats.

For the 2017 model year, with cars commencing U.S. deliveries in July 2016, Volvo (OTCPK:VOLVY) has decided to challenge Tesla's Autopilot pricing proposition by offering it as standard in the S90 sedan. The base price is $47,945 - and unlike Tesla, it includes amenities such as Sirius XM and leather seats.

That's just over 51% of Tesla's 90D with Autopilot price, and that's before the customary dealer discounts that can often well exceed 10%. Some will in turn counter by pointing out that while the Tesla 90D lacks some things, it does have all-wheel drive and that the Volvo S90 with AWD starts at $53,945. The comparison will never be perfectly apples-to-apples, whether in terms of range or in terms of software features such as Apple CarPlay (NASDAQ:AAPL) and Android Auto (NASDAQ:GOOG) (NASDAQ:GOOGL) - which the Volvo has available (CarPlay) or will have soon as a software update (Android Auto), but Tesla does not offer at any price.

I tested the Volvo S90 for a day and a half, in part to determine whether its Autopilot system is any good.

The system is engaged by pressing a button on the steering wheel. Then the car "locks on" to the lane markings, as soon as it has determined that they are clear, including a view of the cars and other obstacles in front of and around the Volvo.

That works at speeds up to 80 MPH. As with the Tesla, the automaker is very careful in pointing out that this is *not* a hands-off system. You must keep your hands on the wheel at all times. As with a pet crocodile, you never know when the system is going to go haywire in a fraction of a second, so for your own safety and those around you, you should not tempt fate by reducing your level of attention even for the briefest moment.

However, to test the system, I cheated a little bit. I let my hands off the wheel and observed how the car performed. Basically, in many situations, the car steered perfectly, especially when lane markings were impeccable.

In other words, very similar to Tesla. It too does a good job at steering the car when the lane markings are good.

Sooner or later, however, the Volvo starts to alert the driver if you have not applied any noticeable torque to the steering wheel, or if lane markings are faded or otherwise confusing. This is what I found happening in the Tesla too. The system basically works… until it doesn't. And that point, you had better be ready to take over, or things can go very wrong, very fast.

On the whole, I found the Tesla system to be slightly better than Volvo's for this main reason: As long as nothing goes wrong, the Tesla leaves the driver to keep his/her hands off the wheel for a longer period of time, before finding out whether the driver has fallen asleep or not. That's taking a bigger risk, but from an experimental "Look ma, no hands" perspective, it's also more novel.

Despite having tried similar Autopilot systems not only from Volvo and Tesla, but also from Mercedes, I find very little (zero) appeal to any and all of them beyond the initial few minutes of novelty fascination. It does not save the driver any attention, and only sets up opportunity for bad behavior and failure. I think that when the verdict is written, perhaps many years from now, Autopilot systems will likely have shown to be counter-productive.

But if you are so inclined to try Autopilot anyway, the Volvo offers it for half the price of the Tesla - $47,945 versus $93,200 for the 294-mile range Tesla 90D. The average buyer will choose to equip both cars higher than those prices. For example, in the Tesla, you probably want leather seats and Sirius XM, just for starters.

But wait, there's more!

Volvo offers Autopilot also in the SUV version of the S90, called the XC90. It was not available on the 2016 model year of the XC90, but it is on the 2017 - as part of a "Convenience Package" which cost $1,800 for the 2016 model year, but will be $2,900 for the 2017 that goes on sale next month.

How does that compare with Tesla's SUV with Autopilot, the X90D? The Tesla X90D starts at $99,200 with Autopilot, whereas the Volvo XC90 SUV with Pilot Assist starts at $47,845.

Wait a minute. Tesla charges $6,000 more for its SUV, but Volvo charges $100 less than its sedan version? Yes.

This means the price spread to Volvo's advantage, grew by $6,100 from $45,255 in the sedan comparison with Tesla Model S, to $51,355 in the SUV comparison with Tesla Model X. Those are huge price advantages in Volvo's favor, whether for the sedan comparison or the SUV comparison, especially since you don't have to suffer the inconvenience of worrying about where to sit and charge the car all the time.

Even before the onset of the 2017 model year, Volvo was recording strong U.S. sales of the XC90 SUV. Using the monthly reported data, and the insideevs estimates for Tesla, this table compares the sole Volvo XC90 model with ALL of Tesla (Models S plus X), for their respective U.S. sales:

US sales

Volvo XC90

Tesla S+X

January 2016

2375

1120

-53%

XC90 larger

February 2016

2472

1820

-26%

XC90 larger

March 2016

3000

5850

95%

Tesla larger

April 2016

3009

1650

-45%

XC90 larger

May 2016

2467

2800

13%

Tesla larger

FIRST 5 MOS

13323

13240

-1%

XC90 larger

Click to enlarge

As you can see above, this one flagship model from Volvo is almost identical to Tesla 2016 to date, in terms of U.S. sales. Does that mean that Volvo's U.S. XC90 franchise alone is worth approximately half as much as Tesla's fully-diluted (using 162 million shares) market cap? $18 billion?

Of course, Volvo's entire franchise value is much larger than its U.S. XC90 model sales. Volvo sells other models, and it sells cars in numerous countries around the world. In 2015, Volvo was essentially 10x larger than Tesla on a worldwide basis:

Total sales

2015

2016 1Q

Tesla total

50568

14810

Volvo total

503127

120591

Click to enlarge

As you can see in the table above, Tesla narrowed the sales deficit vs. Volvo in 1Q to something less than 10x, but remains very far behind. Still, does that mean that on a worldwide basis, Volvo is worth something anywhere close to 8x Tesla, or $280 billion? Of course not, but that just shows the absurdity of Tesla's valuation.

Here is the bottom line: While I don't find Autopilot from any automaker useful - whether Volvo, Tesla or Mercedes - at least Volvo is offering it as standard in its 2017 flagship sedan, as well as for a similar price in its flagship SUV. That $47,945 price is almost 50% less than a Tesla S90D with Autopilot.

So if you want to play with Autopilot, with Volvo you get the flagship sedan AND the flagship SUV for approximately the same amount as a Tesla 90D with Autopilot (and less than a Tesla X90D SUV).

By 2017, we should see other companies offer Autopilot as well. Cadillac (OTC:CADIF) and Audi (OTCPK:AUDVF) are on the record, and Nissan/Infiniti (OTCPK:NSANF) should not be far behind.

Disclosure: I am/we are short TSLA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long GOOGL. However, positions can change at any time. Volvo hosted the author at vehicle launch event, and provided its new models to test. The author regularly attends new vehicle launch events, press conferences and equivalent, hosted by most major automakers, including Volvo, Mercedes, Audi, GM and Nissan.