Elon Musk’s aging Tesla sedans will soon face fresh competition from an unlikely corner

The Volkswagen ID.7 sedan
Volkswagen unveiled its flagship EV sedan, the ID.7, that will come with a 300-mile-plus range and compete with Tesla’s Model 3 and Model S.
Courtesy of Volkswagen

Elon Musk will face fresh competition that could further squeeze demand for his vulnerable lineup of aging Tesla sedans next year. 

On Monday, Volkswagen unveiled its flagship four-door ID.7, the brand’s third global electric vehicle after the ID.4 and upcoming ID.Buzz. VW hopes to poach U.S., European, and Chinese customers from Tesla’s Model 3 and even the Model S thanks to an expected low entry price, roomy interior, and what it calls a 300-mile-plus range.

“I think this vehicle will do very well across the world,” said VW brand CEO Thomas Schäfer on Monday, predicting it would capture a high share of the premium midsize sedan segment in which it competes. “For us, [it’s] a very important car.”

Electric cars made up just 5.8% of new U.S. car sales last year, but they are gaining momentum partly owing to President Joe Biden’s new federal tax credit for buyers of certain EVs. U.S. EV sales eclipsed a record 250,000 in the first quarter, according to market researcher Cox Automotive, putting EVs on track to surpass 1 million in sales for the very first time this year. Moreover the U.S. is actually a laggard when compared with Europe and China, where stringent CO2 regulations are driving EV adoption.

Since the EV market is expanding so rapidly, year-on-year comparisons are essentially meaningless. Analysts therefore focus on sequential growth from one quarter to the next, and here Elon Musk has hit a serious speed bump.

Courtesy of Volkswagen

Despite headline-grabbing price cuts, Tesla’s U.S. sales would have actually dropped had it not been for its youngest product, the Model Y crossover. Sales of the brand’s two sedan models in the first quarter declined over the final three months of 2022, data from Cox Automotive showed. This was particularly true for the Model S, which faces new competition like the Mercedes-Benz EQS and Lucid Air for affluent buyers.

A new VW sedan could steal consumers not only from direct competitors like the Polestar 2, but also from Tesla’s customer base, some of whom are growing increasingly tired of car designs that are six years old, in the case of the Model 3, or 11 years old for the Model S. 

Arriving on U.S. shores in latter half of next year

Volkswagen aims to double its U.S. sales, and indeed its executives readily concede it must. VW’s current dependence on China is being reexamined amid recent speculation the country may invade Taiwan much like Russia did with Ukraine.

As a result, the Volkswagen brand alone plans to invest more than €7 billion ($7.6 billion) in its electric and digital transformation in North America by 2027.

Unlike the ID.3 hatchback and the upcoming entry car unveiled last month, the ID.7 is to be sold in the U.S. market, making it only the third global EV model emblazoned with the VW badge.

Initially, the new car will come with a 77-kWh battery pack that has a rated driving range of 615 km in Europe, or 382 miles—although the official EPA range used in the U.S. will be different. The ID.7 can be fully recharged in about 25 minutes at a speed of up to 200 kW on a fast charging station. 

Courtesy of Volkswagen

More important, the vehicle is abandoning the much-maligned interior of the smaller ID.4 crossover for an upgraded one in line with its semi-premium European import branding. 

This includes, as standard, a large, 15-inch middle console and an augmented reality head-up display as well as optional creature comforts like massage seating for long drives and an electronically dimmable panoramic sunroof. Meanwhile its 117-inch wheelbase means it offers as much space in the passenger cabin as the Tesla Model S.

Since the U.S. version of VW’s new car will be imported from Germany, the first vehicles are not expected to be delivered until after its rollout in Europe that is to begin in the autumn. That means the ID.7 will likely arrive in the latter half of 2024, shortly after the ID.Buzz microbus hits American dealerships.

A price is not yet known, but in Germany the ID.7 is expected to cost well below €60,000 with a more affordable version rolled out later.

Whether the U.S. will also get the larger, pricier 86-kWh battery that is set to debut in Europe next year and is capable of up to a 700 km range is currently being discussed internally, according to a spokesperson for the carmaker.

Many EV fans may have prematurely given up on Volkswagen Group, especially after it sacked its highly respected CEO last summer who personified its EV strategy. The company nonetheless appears to finally be hitting its stride following two straight years of parts shortages affecting everything from semiconductors to wire harnesses

After shifting to local production at its Tennessee factory rather than import from Germany, sales of the ID.4 in the United States have steadily trended higher. In the first quarter, sales nearly hit 9,800 units, having dipped as low as 1,660 in Q2 of last year.

On Friday, the next Tesla competitor from the VW group is scheduled to be unveiled. Its Cupra brand is set to reveal the series production version of its racy Tavascan EV crossover for the European market.

Courtesy of Volkswagen
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