Why BMW's i8 Still Falls Short of Challenging Tesla Motors

BMW needs a strong response to Tesla. The i8 isn't it.

Jun 9, 2014 at 2:50PM

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The new BMW i8 is a luxury sports car -- and a plug-in hybrid. But is it ready for prime time? Source: BMW

It's here. It's hot. But is it good?

BMW's (NASDAQOTH:BAMXF) new i8 is certainly an attention-getter. Its low-slung styling and Lamborghini-style scissor doors make for an exotic look. 

The i8 looks expensive. And it is: The starting price is $135,700.

But the i8 isn't just another expensive sports car. It's BMW's latest move to boost its eco-conscious cred. Does it do the job?

Looming behind the i8: Tesla's Model S
BMW says that the i8 is just the latest example of BMW innovation. But it's clear that the plug-in hybrid i8 exists because Tesla Motors (NASDAQ:TSLA) exists.

Ask executives at Ford (NYSE:F) or General Motors (NYSE:GM) about Tesla, and they'll tell you that they're watching the Silicon Valley automaker with great interest.

But BMW is more than interested in Tesla, it's worried. For good reason: It's BMW's turf that Tesla has invaded.

In terms of size, performance, features, and price, Tesla's Model S sedan is a direct competitor to BMW's 5-Series. And Tesla is no slouch: Its build quality and customer service have received very high marks. 

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Tesla's gorgeous and capable Model S has won a lot of fans, and not just in the U.S. Source: Tesla Motors

That's true of BMW, too. But of course the all-electric Tesla has a cool factor that an ordinary BMW 5-Series can't match. And Tesla really is on BMW's turf now: The Model S is on sale in Germany, starting at 65,740 euros -- and it's winning some high-profile buyers.

With Tesla hoping to ramp up to 500,000 annual sales before too long, BMW knows that it needs to do something now in order to stay competitive. Unlike rival Audi, which is part of the vast Volkswagen (NASDAQOTH:VLKAY) empire, BMW doesn't have a big mass-market brand to fall back on. Luxury is its business.

Enter the i8.

A "novelty act," not a serious competitor for Tesla -- yet
It's gorgeous and it's a real product -- and a real BMW. It's a real sports car, too: It'll do 0-60 miles per hour in 4.5 seconds, says BMW.

It's BMW's first serious high-dollar attempt to respond to Tesla.

But I think the i8 is best understood as an early draft of what BMW has in mind.

Influential trade magazine Ward's Auto recently tested an i8 and pronounced it "not quite ready for prime time." The i8 is a plug-in hybrid, which means it has some range on batteries before the gasoline engine starts -- but Ward's got just 13 miles running on the battery, well below BMW's claimed 22-mile electric range. 

It got worse: After driving 25 miles at about 50 miles per hour, using the gas engine in conventional hybrid mode, Ward's got 27.8 miles per gallon. As they note, that's great for a big luxury sports car, but it's not exactly revolutionary.  

The 2014 Corvette Stingray is EPA-rated at 28 miles per gallon on the highway with its seven-speed manual transmission. The i8 may be quick, but it's not Corvette-quick: The Vette will trounce it in a drag race, and it starts at a mere $53,000. 

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For all of its high-tech touches, the i8 is more like Cadillac's very pretty ELR than it is like the Model S. Source: General Motors

Ward's concluded that the i8 is "merely a novelty act, albeit an incredibly attractive one." In that sense it's not unlike GM's Chevy-Volt-based Cadillac ELR: a handsome coupe that's priced like a Tesla, but turns out to be a pretty ordinary hybrid, a placeholder for the real electric cars to come.

The upshot: It's still early in the game, but Tesla has a big lead
As with GM and the ELR, the i8 is BMW's way of getting a toehold in the market for green luxury vehicles with the technology it has on hand. 

Within a few years, I expect to see BMW -- and GM's Cadillac, and other serious luxury-market players -- field cars with capabilities that are a lot closer to Tesla's. It's not impossible that one of the big automakers will even surpass Tesla -- with sufficient commitment, a giant global company like VW or GM could marshal research and engineering resources that Tesla can't yet hope to match.

But the message of the i8 -- pretty as it is -- is that we're not there yet.  Not even close.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends BMW, Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and 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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