The Audi (OTCPK:AUDVF) eTron which began production in its Brussels, Belgium, factory in September 2018, and goes on sale in Europe in January 2019 and in the U.S. in April 2019, has three or four direct competitors in the market today:
Tesla Model X, which starts at $84,000 + $1,200 delivery = $85,200
Tesla Model S, which starts at $78,000 + $1,200 delivery = $79,200
Jaguar i-Pace, which starts at $69,500 + $995 delivery = $70,495
... and arguably also some versions of the Tesla Model 3, whose all-wheel-drive (AWD) version starts at $53,000 plus $1,200 delivery fee, for a total of $54,200.
If these were all regular gasoline or diesel cars, we would normally not consider these vehicles from Audi, Jaguar (TTM) and Tesla (TSLA) to be perfect competitors, because they have different sizes (length, width and height), weights, and some other features such as towing vs. no towing. However, what these vehicles have in common is, at this early stage of the market, a lot more important - and enough for them to compete for buyers in many instances.
Yes, of course, there are some people who will only consider one of these vehicles vs. the other. For example, if you need a car with the greatest water-fording depth, then the Jaguar i-Pace is for you, because you can drive it in two feet of water. Maybe you would like to ford a stream at your farm.
Likewise, if you want your car to be compatible with Apple CarPlay and Android Auto, then the Audi eTron and Jaguar i-Pace are for you. However, on the whole, I think it's hard to argue that these cars from Tesla, Jaguar and Audi don’t compete against each other for a large percentage of the prospective buyers.
Before dealer discounts and tax/subsidy adjustments, the Audi eTron starts at $75,795, which is in the same general zone as many versions of the Jaguar and Tesla models. The big picture is that many buyers in this $70,000 to $90,000 list price range, considering an electric vehicle that’s got four doors, will consider a broad range of body definitions, ranging from hatchback (Model S) to SUV (eTron and iPace) and minivan (Model X). They all carry a minimum of five adults, and have all-wheel drive with at least in the ballpark of 400 horsepower.
So what’s new here? Two things:
I have now driven the Audi eTron, so I can tell you how it compares to the Jaguar i-Pace and Tesla Model S and X.
I have an update on the manufacturing of the Audi eTron, and its market introduction.
Audi launching an all-electric SUV is a big deal. It represents Tesla’s second premium BEV competitor, arriving in dealerships only approximately four months after the Jaguar i-Pace.
At a high level, all of these premium battery-electric vehicles (BEVs) from Audi, Tesla and Jaguar have a great amount of commonality in their general driving characteristics. That’s just been the case with electric cars in general to date, and this new example was not much of an exception.
You should keep that in mind when I list the differences in terms of “driving dynamics.” They are, in the big scheme of things, more nuances rather than stark differences. It's hard for someone not driving them perfectly back-to-back to remember significant “driving dynamics” differences between these cars.
The Audi’s steering is not as precise as the Jaguar’s, and the acceleration - while more than adequate - also can’t match the Jaguar. It’s 5.5 seconds to 60 MPH, as opposed to 4.5 seconds for the Jaguar. Teslas can be had in even faster versions, although you pay more for those that accelerate the fastest. Neither of these things will likely sway more than the pickiest of people.
The Audi is a larger SUV than the Jaguar. You feel it in both the front and rear seats. There’s simply more space all around your head and legs/feet in the Audi. This may be a more important factor for some people.
I prefer the Audi’s interior, which looks just like the 2019 model year A6, A7 and Q8. For the Jaguar, while it's mostly similar to the Range Rover Velar, there are a couple of differences that tell you it is Jaguar’s BEV - and not a diesel or gasoline SUV. The transmission shifter is the main interior giveaway.
The Audi has an important advantage in that the paddle shifters control the regenerative brakes. In the Jaguar, this is done through the touchscreen, which is simply inappropriate. Still, the Audi system is not as good as the one found with Hyundai’s Kona EV and Chevrolet’s (GM) Bolt EV paddle shifter interface for regenerative braking.
Audi’s other main advantage is that it can charge at 150 kW. No other electric car today can charge that fast. The Jaguar could go up to 100 kW with a software update, which may or may not have arrived yet for the U.S. market - but until then it’s limited to 83 kW. In the future, perhaps a year from now, a small hardware change should bump up the i-Pace further to 120 kW. Tesla already charges at 120 kW.
The Audi can take 150 kW up to 70% of a fill, which will make it very fast. It's also the only EV of which I am aware, which has two AC charging ports - one on each side of the front fender. This could be a major help to some people trying to park near otherwise-too-short cords.
All of those details aside, my guess is that they will all dwarf in relation to one other, far more superficial, decision factor: Styling. The Audi eTron looks nothing like the Jaguar i-Pace or any of the Tesla models.
Styling taste is very much individual, so there's no objective answer here. I like the way all of these cars look, and until now the Jaguar i-Pace was certainly the freshest face. Now that I have spent time with the Audi eTron in the wild, however, I can say that it is extraordinarily well executed in its design. It’s simply a stunner, even if the overall design does not depart from the other Audi SUVs such as Q8 and Q5. The proportions are better, however, and the end result is simply superb. You should look at it yourself, especially outside in the natural light.
As with the Jaguar, the Audi does not copy the Tesla’s austere interior concept. Tesla remains the choice if you want a cheap interior and you dislike Apple and Google for CarPlay and Android Auto.
In my test drive, I did experience what may be the Audi’s only really significant weakness - its (lack of) efficiency. I got mostly around 30 to 38 kWh of energy consumption per 100 kilometers, or close to two miles per kWh. Granted, when I test a car I tend to pretend I’m driving it on a race track, but this low level of efficiency does not bode well for the EPA-certified range. I'm estimating it will land closer to 210 than 235 miles. That would not be great. We should know by March 2019 - but this is without a doubt the eTron’s main weakness.
It should be pointed out that you’re getting something for this low range in the Audi eTron. You get an SUV where you can both tow up to 4,000 lbs and put a roof rack on top of the car. You also get an off-road worthy SUV, where the warranty does not void if you start playing Indiana Jones and drive across Africa on a safari.
As you might appreciate, efficiency suffers when you stuff an otherwise identical powertrain into a Land Rover Defender, Mercedes G or Jeep (FCAU) Wrangler. While the Audi eTron is not as capable in the harshest terrain as those mountain-goats, it stands to reason that when you engineer a car for off-road duty, on-road efficiency will suffer. This goes for both the Jaguar i-Pace and the Audi eTron.
Still, with all of those important caveats, this remains a strike against both the Audi and the Jaguar. You are not getting those amazing off-road capabilities for free. You’ll be paying for them at “the pump” - aka, in this case, the electric cord and meter. On paved roads, a Tesla will move you forward using fewer kWh per unit of distance traveled.
What about Audi’s all-electric factory?
The Audi eTron is made in Brussels, Belgium. The batteries come from LG’s factory in Poland, and the battery pack is assembled in Brussels. The electric motors come from Audi’s factory in Hungary - which is the world’s largest engine factory, as they make over two million of them per year in that facility.
Audi said that they can make up to 200 of these eTron cars per day. That would be 50,000 per year. My sense is that this production volume could be reached around the middle of 2019, when the Audi eTron Sportback will be added to the production. The eTron Sportback is the same car as the eTron, except it will have a less practical body on top of the chassis. For the life of me, I don’t understand why anyone would want such a less practical body style, but my tastes are clearly not reflective of the broader public.
Meanwhile, there are conflicting statements about Jaguar’s production of the i-Pace, which is handled by Magna (MGA). Some say it remains at 80 cars per day (20,000 per year), yet others say it’s being increased to 300 per day (75,000 per year).
Monthly i-Pace sales in Norway are averaging barely around 400 units, which does not translate proportionally to anywhere near 75,000 per year globally, but rather matching the 20,000 per year global number. Then again, perhaps this includes significant future sales to China as well as Waymo (GOOGL) starting at the end of 2019, and an ambition to increase the output to such a level by the end of 2019. I’m skeptic, but let’s go with that higher number for now anyway, as we look to where the market may be a year into the future.
Financial impact to Tesla from the Audi eTron launch
Someone might say that the addition of the Jaguar i-Pace in the last couple of months, and now the Audi eTron in 2019 (Europe in January, and the U.S. in April), will only expand the market for EVs. There's of course some truth to that argument. The EV market for plug-in vehicles has been growing 34% year-over-year in Europe in 2018: Europe October 2018. In the U.S., sales are up approximately 80% this year: Monthly Plug-In EV Sales Scorecard.
With Tesla selling approximately 100,000 Model S + X units per year for multiple years in a row now, it looks like these lines of Tesla premium cars were already lacking any meaningful growth. Now that Audi and Jaguar enter the market with as much as 125,000 combined capacity (Audi 50,000 and Jaguar up to 75,000), on a run-rate by the second half of 2019, that assumes this segment of the market more than doubles in approximately one year (from 100,000 to 225,000).
Unless the premium EV market starts to grow a lot faster than the current 34%-80% in Europe and the U.S., this onslaught of volume from Jaguar and Audi would almost by necessity eat into Tesla’s Model S+X unit volume, and thereby also likely its margins. Of course, it won’t be just Jaguar and Audi - almost all other automakers will be joining this segment in stages over the next three years. For example, Mercedes (OTCPK:DDAIF) launches its equivalent car, the EQC, in Europe in the summer 2019. BMW (OTCPK:BMWYY), Volvo (OTCPK:GELYF) and most other automakers will have many entries in the segment in 2020, 2021 and 2022.
Actually, this new competition has a three-fold impact on Tesla’s investment prospects:
Volume impact: More new product coming onto the market, than the market growth.
Margin impact: With more competition comes discounting and lower margins.
Psychological impact: Consumers and investors now see that they have a mushrooming number of alternatives, with in many cases clear advantages over Tesla’s products. That’s a multiple-contractor “thanks” to the lower investment scarcity value.
How will we see the Audi eTron impact play out?
First, January 2019: Audi has been manufacturing the eTron since September 2018, and a software change caused it to have to re-certify the car with the European authorities, causing the initial deliveries to slip from late Q4 to January 2019. By early January 2019, dealers all over Europe should have their units on hand for near-simultaneous initial deliveries. Here is an example of the post-manufacturing, pre-launch, activity that is going on in Germany right now: Matthias Schmidt on Twitter.
The main eTron launch countries will be, in approximate order:
Audi told me that it has over 20,000 eTron deposits, with clearly the vast majority coming from Europe. Norway alone could constitute annual sales over 5,000 units.
Audi starts manufacturing the units for the U.S. market launch at some point in the next 30 days. Once they have been transported to the U.S. and distributed to all the dealers across the states, they should be ready to start simultaneous deliveries on or very shortly after April 1, 2019.
The problem for Tesla in this equation, is that for every eTron that Audi sells, some percentage of those will come from what would have otherwise been a Model S or X sale. And for every lost Model X or S sale, Tesla has to sell several Model 3 units just to make up for this lost margin. That’s a material financial impact to Tesla, coming from the Audi eTron.
We see how the Jaguar i-Pace has already eaten into Tesla’s Model S and X growth potential in Norway, Netherlands and Sweden. Tesla would clearly have sold many more cars in those countries, in October and November, had it not been for that pesky Jaguar i-Pace. And now, in early 2019, the Audi eTron will put further pressure on Model X and S sales.
Conclusion: This is the beginning of the onslaught of the all-electric SUV
Audi and Jaguar are merely the first. By the end of 2022, we will have approximately 200 all-electric vehicles on the market, and given the nature of consumer preferences, it’s fair to say that half of them (or more) will be SUVs in various formats.
Will there be a market for all of these all-electric cars and SUVs? Is it what the consumer is asking for, in these kinds of volumes, or is it merely a politically correct fantasy residing mostly in California’s wealthiest coastal ZIP codes, plus a few besserwissers in Washington, D.C.? We will know in four years from now.
Meanwhile, as for the Audi eTron: Don’t dismiss it until you’ve driven it.
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. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers. Audi hosted a product drive intro event.