Volkswagen Will Follow Tesla Motors' Lead With 5 New Electric Cars

By Markets Fool.com

Volkswagen's BUDD-e concept, shown earlier this year, is a futuristic battery-electric take on the iconic VW Bus. The first of VW's upcoming electric models could follow similar lines. Image source: Volkswagen.

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Volkswagen (NASDAQOTH: VLKAY) is planning five new battery-electric models for its VW brand, all of which will have a range of at least 400 kilometers (about 250 miles) -- and we might see the first of them as soon as next month.

Moving on from diesel: VW's aggressive electric-car plans

In a new interview with German business magazine Wirtschaftswoche, VW brand chief Herbert Diess confirmed plans to bring five new electric VWs to market. All will be based on the Volkswagen Group's new modular electric-vehicle architecture -- and they'll be sold in the U.S., Europe, and China.

VW will show a concept car at next month's Paris Auto Show that will be a "foretaste" of the first model in the series. Diess said the new electric VW is slightly smaller than the compact Golf hatchback on the outside, but its interior room is comparable to that of the midsize Passat. It will be all-electric, battery-powered, with a range of "400 to 600 kilometers," Diess said. (But note that Europe's electric-car testing protocol generally yields longer ranges than U.S. testing methods.The range cited by Diess might translate to something more like 200 to 350 miles under U.S. standards.That's still impressive for mass-market electricvehicles, but not radical.)

Diess expects the new electric VWs to sell at prices comparable to those of similarly sized diesel-powered models in VW's current lineup. But the first one won't go into production until late in 2018, he said. VW has a lot of work to do first.

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The first steps in a huge transition: A million electric cars a year by 2025

The VW Group includes a slew of automotive brands, most notably Audi and Porsche, in addition to the namesake VW brand. Both Audi and Porsche have shown concept versions of upcoming battery-electric models. Audi's, an electric SUV set to rival Tesla Motors' (NASDAQ: TSLA) Model X, is expected to begin production in the first quarter of 2018. Porsche's electric sports sedan will follow somewhat later.

VW's goal is to be selling a million battery-electric vehicles a year by 2025. Getting to that number will require several mass-market models in addition to the luxury entries, and that's where Diess' VW brand comes in.

It will also require major changes to VW's production facilities and a new global supply chain. Diess said that several VW factories will be set up to build electric cars, possibly including one in North America. The supply chain is probably a bigger challenge: Where will VW get all of the batteries it needs to power all of those vehicles?

For now, the easy answer is Asia: Several Chinese and Korean companies are aggressively expanding their lithium-ion battery-cell production capabilities. But Diess doesn't want to be entirely dependent on Asian suppliers, and he hinted that VW may seek to build its own battery-production facilities in Europe.

German business newspaper Handelsblatt reported in June that VW was considering an $11 billion plan to build a massive battery-manufacturing facility at a site near an existing VW engine factory in Germany. The size of the investment suggests a factory that could rival, or even exceed, the planned output of the $5 billion Tesla Gigafactory currently under construction in Nevada. Diess hinted that the company may be seeking partners for such an effort.

Will buyers show up for electric VWs?

So far, electric cars have been a hard sell in VW's home market, Germany. Diess and other VW executives have suggested that the limited range of most current battery-electric vehicles is a limiting factor, and that sales will improve once ranges are comparable with gasoline- and diesel-powered alternatives.

That might be true. Tesla has shown that there's a sizable potential market for well-executed electric vehicles with good ranges. But importantly, Teslas are exciting, with sleek designs, fast acceleration, and features that thrill tech-minded buyers. Tesla CEO Elon Musk has said repeatedly that his company is trying to show the big automakers how to successfully build and sell electric cars -- and for Tesla, that excitement is part of the equation. In Musk's view, it's not just enough to be comparable to gas-powered alternatives -- electric cars have to be better (at least in some ways) to get buyers' attention.

More "ordinary" electric vehicles may be a harder sell to buyers who are unfamiliar with the technology and worry about the difficulty of recharging away from home, at least in the near term. Unless VW finds a way to include some Tesla-style excitement in its upcoming electric cars, it may have to do a great deal of education in order to convince its customers to give them a try. That effort may involve retraining and incentivizing its dealers, in addition to the marketing and advertising costs.

In any event, it's a massive shift by one of the world's largest automakers. We'll know more about VW's plans to draw buyers to electric cars when it takes the wraps off of its concept vehicle in Paris at the end of September.

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John Rosevear has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.