Fast and Luxurious Plug-Ins Chasing Tesla


General Motors (NYS: GM) just pulled into the high-voltage passing lane with the announcement that it will build the Cadillac ELR, an electric luxury sports coupe. That model will probably come out in 2014.

This news will certainly put another rumble strip in Tesla's (NAS: TSLA) path to a more mainstream market. Tesla recently said that it is stopping production of its groundbreaking Roadster -- a very expensive electric sports car -- to concentrate on its more affordable but still upscale Model "S" electric sedan.

But if a company with the R&D, testing, and manufacturing resources of a GM puts its weight behind producing a competitor for the Tesla "S," the chances for its success get much slimmer than they already were.

To plug in, or to plug-in hybrid?
In terms of technology, there is a huge difference between Tesla's plug-in drivetrain and Cadillac's ELR plug-in hybrid drivetrain.

With the Tesla, there is only the battery supplying the power. When the juice is gone, well, it's totally gone until it's plugged in again and recharged. That could take hours. Frankly, that just doesn't seem practical.

With the Cadillac ELR, a battery also supplies the power. The difference is that when that juice is gone, there is also a small gasoline-powered generator to do the recharging on the run. This is the same basic drivetrain that powers the Chevy Volt. Plug in and/or fill up. That makes more sense to me.

Dog eat dog
The Cadillac ELR also threatens privately owned Fisker Automotive's Karma, a $97,000 plug-in hybrid sports car. Fisker plans to sell it in 2012. The Karma, in turn, is yet another threat to the Tesla, especially if Tesla plans on bringing back its own sports car, the Roadster model.

And Toyota (NYS: TM) is also joining the plug-in hybrid crowd, when it rolls out a plug-in version of the groundbreaking Prius hybrid. This vehicle would fight directly with the Chevy Volt for middle-income plug-in hybrid market share.

Ford (NYS: F) , too, is charging in with the C-MAX Energi, a plug-in hybrid crossover vehicle. Ford says it will be available next year.

Wake up and smell the CAFE
What's spurring on this increased plug-in hybrid activity? Mainly the new corporate average fuel economy, or CAFE, standard, which will go into effect in 2025. That requirement will be 54.5 miles per gallon, double what it is now. The Center for Automotive Research showed that to meet that standard, at least 19.3% of the vehicles on the road in 2025 will need to be plug-in hybrids.

Economies of scale
The Chevy Volt sells for $41,000 before a federal tax credit of $7,500. That's too pricey right now to be a big seller in the middle-class market, and the Volt has been a money loser for the company. GM will lower per-unit drivetrain costs by sharing with the Cadillac ELR. It will also gain from the higher profit margins of the luxury brand.

According to fellow Fool Patrick Martin, GM is currently saddled with too many different vehicle platforms, and it plans to cut the number of models for more efficient manufacturing. GM's plan to share the plug-in hybrid drivetrain among its brands would be a step toward making the company greener in both senses of the word: environmentally and -- potential investors take note -- financially.

There will be accelerating changes in the automobile industry as manufacturers claw their way past each other in the quest for higher mileage and better quality. Keep a close eye on this cyclical industry by adding the mentioned companies to your Watchlist.

At the time thisarticle was published Fool contributorDan Radovskyhas no financial interest in the companies mentioned. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.