Why Daimler's Mercedes-Benz Is Rushing to Challenge Tesla Motors

By Markets Fool.com

Mercedes-Benz is about to reveal the first of a new line of electric vehicles aimed at Tesla Motors. They're expected to have distinctive styling that could follow the lines of this 2015 Mercedes-Benz show car. Image source: Daimler.

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Mercedes-Benz parent Daimler (NASDAQOTH: DDAIF) is working on at least six new electric vehicles, as part of a big push to fight back against Tesla Motors (NASDAQ: TSLA) and keep pace with Mercedes' German luxury rivals, according to a new report.

Mercedes's push into electric cars is bigger than previously reported

Citing unnamed industry sources, German automotive trade publication Automobilwoche reported on Saturday that "more than six" new battery-electric Mercedes-Benz models are planned, including SUVs and crossovers, sedans, and compact cars.

There may be additional long-range compact electric cars under development for Daimler's Smart brand, the report said. The new battery-operated Mercedes-Benz are expected to come to market starting in 2018.

That's a bigger program than had been previously reported. We've known for a while that Mercedes is planning four electric models aimed directly at Tesla. A prototype version of the first, believed to be a crossover SUV comparable in size to Mercedes' current GLC models, is expected to be unveiled at the Paris Motor Show early next month.

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That crossover is expected to be followed in the near term by three more Mercedes-Benz EVs, including two sedans and a much larger crossover SUV, bigger than any current Mercedes-Benz SUV. The vehicles are expected to be sold under a new Mercedes sub-brand and to feature distinctive styling, possibly similar to that on last year's Concept IAA show car, shown above.

Mercedes and its German rivals are feeling pressure to fight back against Tesla

Mercedes, like German rivals BMW (NASDAQOTH: BAMXF), Audi (NASDAQOTH: AUDVF), and Porsche, is feeling the need to step up its technological game to counter Tesla. The German luxury brands have long prided themselves on their advanced technologies. But increasingly, the perception is that the Silicon Valley upstart has leapt ahead. That has all four companies scrambling to respond with advanced electric vehicles of their own.

There are more practical reasons to fight back, too. Tesla is still a tiny company by global automaking standards, but every one of the 80,000 or so vehicles it'll sell this year are taking sales away from the similarly priced upper-tier models from the German brands.

At least, that's how the Germans see it. Coupled with the sense that Tesla's investors will continue to fund it indefinitely while it sells cars at a loss, the frustrations among engineers and product planners at Mercedes and the other companies are running high. Those frustrations are fueling the efforts to develop these new vehicles -- and to get them to market in time to take some sales away from Tesla's upcoming Model 3.

What's next: We'll see Mercedes' first Tesla-fighter in a few weeks

The speculation will start to turn into knowledge in a few more weeks, when Mercedes-Benz takes the wraps off of that electric vehicle in Paris. At that point, we should have a much clearer understanding of how Mercedes' offering will stack up against its likely Tesla rivals technologically. We'll also get some insight into the approach that Mercedes will take in marketing its upcoming line of electrics against Tesla.

Both will give investors (in both Daimler and Tesla) a better basis for evaluating Mercedes' chances of cutting into Tesla's sales. We'll take a closer look then.

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John Rosevear has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla Motors. The Motley Fool recommends BMW. 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.