Head to head

How Tesla shapes up against Germany's luxury cars

A red Tesla Roadster is seen during preparations to use it as a mock payload for the launch of a SpaceX Falcon Heavy rocket
A Tesla Roadster: It's not rocket science. Source: Reuters

Tesla’s sales of 101,312 cars in 2017 were just a tiny portion of overall US auto sales of 17.8 million. Yet the all-electric car company founded by South African-Canadian entrepreneur Elon Musk is considered the most innovative car company in the US, gaining a fashionable reputation that German carmakers can only dream of. This week it even sent one of its cars into space, in a rocket made by one of Mr. Musk’s other companies, SpaceX.

But while Tesla leads its German rivals in several innovation and technology areas, the Europeans do still have an edge in others. We looked at how the two compare in four of the most important business areas:

1. Products

Tesla
Mr. Musk, who founded the online payments firm Paypal before venturing into cars and space exploration, is now offering four Tesla models: a sports car called the Roadster, the Model S sedan, an SUV dubbed Model X and, starting last year, the Model 3. All are 100 percent electric, and like Henry Ford’s early Model T, choice of color and interiors is extremely limited. It’s no coincidence that Tesla’s models sound similar to German cars like the Mercedes-S-Class and the X-Series from BMW. Tesla wants to appeal to customers who might buy German luxury brands, which between them control around 60-70 percent of the global luxury car market.

The Germans
The brand and model diversity of the German automotive industry is truly enormous. The VW Group alone has 12 brands and over 300 models. There are also countless engines and equipment variations: BMW recently counted 100 different steering wheel designs. This thicket of slightly different models is being cut back to save money. The German brands are using the money saved to develop competitive vehicles in the electric car category. At the moment, the BMW i3, the VW Golf and the Smart are the only electric German cars on offer.

2. Research and development

Tesla
At $1.38 billion (€1.12 billion), Tesla’s spending on research and development is much lower than that of German brands. But in relation to the number of cars sold, Tesla spends much more. Mr. Musk has the advantage that he can concentrate his limited resources on electric vehicles. He works on the principle of constant improvement, which he adopted at his software companies. For updates of vehicle software, for example, Tesla owners don’t have to go to the dealer, but can simply download them over the Internet just as they update their smartphone.

Providing software updates on the internet as Tesla does is still a bridge too far for the Germans.

The Germans
Mercedes-owner Daimler, BMW and VW together spend nearly €30 billion ($37 billion) a year developing new products. But the money has to be spread among a huge range of different cars. The majority of funds continues to flow into the development of conventional combustion technologies. But caught off guard by Tesla’s success, and environmental initiatives like the Paris Climate Accord, German companies are now making huge investments in e-mobility. The VW Group alone is dedicating €34 billion toward the development of electric cars over the next five years. In the same period, Daimler is spending €10 billion. A second R&D focus is autonomous vehicles, which the three automakers are hoping to bring to market by 2021.

3. Sales

Tesla
The US producer has dropped many of the traditional methods of selling cars, for instance, at dealerships. Instead, cars are sold directly over the web. For test drives, Tesla employees come directly to the customer. Taking a page out of Apple’s successful use of glitzy stores in urban areas, Tesla relies on flagship stores that are more like a boutique than a car dealership. Service branches exist only for repairs, which are much less frequent with electric cars. The company doesn’t need to advertise because of all the positive publicity it receives.

The Germans
The auto companies maintain huge dealer organizations and sales techniques still follow traditional methods. They make the mistake of selling what their engineers think are great features, but that the customer often doesn’t want or need. The Germans also lag behind Tesla on automation. Providing software updates on the internet as Tesla does is still a bridge too far for the Germans, who prefer white-coated technicians in scrupulously clean garages.

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4. Production

Tesla
While Mr. Musk hopes to achieve a price advantage through automation, the assembly line has been one place where Tesla has not lived up to the promise. At the Gigafactory, where Tesla assembles its car batteries, for example, US media reported that the assembly line had slowed down so much that workers were putting parts together by hand. While Mr. Musk promised to turn out 5,000 Model 3 cars a week, in the end they managed only 2,400 — in the entire fourth quarter.

The Germans
The automotive industry has the strongest production network in the world. The VW Group alone produces in more than 100 plants from China to South America. Using factories in Germany as the model, Daimler, BMW and VW and a huge chain of integrated parts suppliers have mastered the art of just-in-time vehicle assembly. So far, electric vehicles haven’t made it into this network, but the carmakers say that within four years all plants should be able to handle both gas guzzlers and electric vehicles.

 

Marcus Fasse covers the auto industry for Handelsblatt, Lukas Bay is an editor with Handelsblatt’s companies and markets desk and Thomas Jahn is Handelsblatt’s New York bureau chief. This story was adapted in English for Handelsblatt Global. To contact the authors: fasse@handelsblatt.com, bay@handelsblatt.com, jahn@handelsblatt.com

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