Why Aston Martin Is Taking On Tesla Motors

Aston Martin CEO Andy Palmer said that an all-electric version of the company's Rapide sedan will hit the market within two years. Source: Aston Martin Lagonda Ltd.

The CEO of tiny British supercar maker Aston Martin said this past week that his company will release an all-electric luxury sedan within two years.

Aston chief Andy Palmer told reporters in California last weekend (via Automotive News) that the all-electric version of Aston's sleek Rapide sedan would have around 800 horsepower, 200 miles of range, and a likely starting price north of $200,000.

That news brought snorts from Tesla Motors enthusiasts. My Foolish colleague Daniel Sparks, a Model S owner, called Aston's effort "not so ambitious" and noted that it was unlikely to match the acceleration figures posted by the hottest Tesla variant, the new P90D, much less Tesla's industry-leading range.

I think Daniel is probably right -- to some extent. Aston Martin's electric car is unlikely to match the Tesla's whiz-bang technology and the P90D's "ludicrous" acceleration. But I also think that Daniel, and a lot of other folks, are misunderstanding what Aston Martin is hoping to accomplish with its first move into electric cars.

Aston Martin has a problem, and Tesla's success might solve itHere's the thing. Unlike most of its famous exotic-car-making rivals, Aston Martin is independent. Mercedes-Benz's corporate parent Daimler owns a small stake, but Aston Martin isn't part of a larger global automaker. That means that Aston, unlike most of its competitors, has to meet global fuel-economy regulations on its own.

Aston Martin's sleek coupes are known for their powerful V8 and V12 engines. But big powerful gasoline engines aren't exactly environmentally friendly. Environmental regulations around the world are getting stricter every year. Nobody is proposing to ban such engines (at least not yet), but automakers are required to offset their gas-guzzling offerings with other, cleaner models.

That's not a problem for most of Aston's rivals. Porsche, for instance, is part of the huge Volkswagen Group. Its powerful cars are offset by fuel-sipping Volkswagens. But Aston Martin has to meet those rules on its own.

Palmer's predecessor as CEO, Ulrich Bez, tried to appease regulators by offering a dressed-up version of the Toyota IQ, a tiny "city car" with all of 94 horsepower, as the Aston Martin Cygnet. That satisfied the regulatory requirements, more or less, but sales were near zero, and Aston's longtime customers were not amused.

That's why Palmer, a longtime Nissan executive who took over as CEO last year, is trying a different tack: An electric car that is a "proper" Aston Martin.

Aston Martin isn't looking to compete with Tesla, exactlyHere's the key observation that Palmer cited in his remarks last week: Tesla's Model S has sold very well despite its hefty price. While it starts at $75,000, the long options list means that the average transaction price is right around $100,000. The hottest version, fully loaded, tops out at about $142,000.

Many automakers are working on electric cars and SUVs that are expected to roughly match (or undercut) Tesla's prices. Tesla itself is working toward more affordable offerings: Its upcoming Model 3 is expected to start around $35,000.

The Model 3 will be critical for Tesla, which aspires to be a large-scale mass-market automaker. But Aston Martin is playing a very different game. Its cheapest model starts at well over $100,000, and most Astons sell for much more.

What Palmer takes away from Tesla's experience is that there could be a market for an even more upscale electric car, something above Tesla's offerings.

Something for Tesla owners to move up to. If even a few choose to add an electric Aston Martin to their garages, Palmer's problem will be solved. (And if the electrified Astons turn out to be good, then Aston Martin might be on to something.)

An electric Aston Martin will out-do Tesla in some key ways Aston Martin's engineering resources are very limited. It doesn't have any hope of out-doing Tesla's bleeding-edge software. And it probably doesn't care about out-doing the P90D's acceleration figures -- although the electric Aston is sure to be a sharp performer.

It's unlikely that there will be anything cutting-edge about the electrified Rapide's drivertain, because it's likely that it will be built mostly with off-the-shelf components sourced from big global auto-industry suppliers. To the extent that Aston adds its own "special sauce", it's likely to be in the car's handling, its fine-tuning -- and of course, in Aston Martin's superb design and exquisite hand-crafted interiors.

That's where Aston Martin has an advantage over Tesla. Tesla certainly could create a more upscale model, something to slot above the Model S -- at least in theory. But it can't do that right now: It needs to focus all of its engineering and development efforts on entering the mass market, in order to meet the sales-volume goals its investors expect.

Long story short, Tesla's success has created an opportunity that Aston Martin needs to seize. Will the new electric Aston be worthy of its name? We'll find out in a couple of years.

The article Why Aston Martin Is Taking On Tesla Motors originally appeared on Fool.com.

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

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