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Tesla's upcoming Model 3 is being positioned as a BMW 3-Series rival. It's a safe bet that BMW won't let it go unchallenged. Image source: Tesla Motors.

Investors in Tesla Motors (NASDAQ:TSLA) are excited about the prospects for the company's upcoming Model 3 sedan, and with good reason: With over 400,000 deposits in the bank, the question isn't whether the new model will sell well -- it's how quickly Tesla can produce enough to meet the huge demand. 

Much of the appeal of the Model 3 is wrapped up in the upscale cool that comes with the Tesla nameplate: It's seen widely as a futuristic all-electric rival to BMW's (NASDAQOTH:BAMXF) 3 Series, long the industry benchmark for a fun-to-drive small premium sedan. 

If Tesla can get production of the Model 3 up and running at full speed anywhere close to its (very ambitious) projected timeline, the baby Tesla could put a big dent in the sales totals for BMW's benchmark model. 

That prospect has to be keeping BMW product planners up at night -- and their plan to respond probably won't surprise you.

How BMW will answer Tesla's Model 3

Officially, BMW hasn't said a whole lot about its future electric-car plans. But we know it's working on an all-new version of the 3 Series that will arrive in 2018 -- and a recent report suggests that an all-electric version is in the plan.

Britain's Auto Express magazine is reporting that BMW is working on a battery-electric variant of the upcoming new 3 Series. According to the report, the electric 3 Series will have a 90-kilowatt-hour battery pack. That should give the 3-Series EV a range comparable to the top-of-the-line Teslas -- possibly as much as 300 miles, depending on the BMW's weight. 

It's not clear when the electric 3 Series will arrive, but it's likely to be launched sometime after the first gasoline-powered 3 Series arrives (probably early in 2018) -- almost certainly by 2020. (BMW has previously said that it will launch an advanced electric successor to its big 7 Series in 2021. It's likely that the electric 3 Series will come first.) 

By 2020, Tesla should have Model 3 production up to full speed, with at least a few hundred thousand cars in owners' hands. Will the BMW stand a chance?

Tesla's tech may not help it match BMW on this front

Tesla is known for its advanced technology, and BMW may not quite be able to match the best connected-car tech from Silicon Valley by 2020. It's a safe bet that on paper at least, the electric 3 Series will compare fairly well with the Model 3, but it might be lacking some advanced features. That said, the BMW could well have a real-world advantage over the Tesla when it comes to driving dynamics, thanks to BMW's handling expertise -- and to the lightweight architecture of its upcoming 3 Series.

The new 3 Series will be based on BMW's "CLAR" architecture. CLAR (Cluster Architecture) is modular, meaning that it can be used as the basis for vehicles of varying sizes, and it's expected to eventually underpin most or all rear-wheel-drive BMW models. All should benefit from the architecture's attention to weight: CLAR uses a mixture of high-strength steel, aluminum, and carbon fiber to reduce weight while increasing structural rigidity.

Reducing weight has become a critical priority in the non-electric-vehicle world. With internal-combustion engines, lighter weight means better fuel efficiency, all other things being equal. But that's not the only advantage: that increased structural rigidity will translate into better handling, and handling is a critical part of what makes a BMW a BMW.

The mixed-material approach that BMW is using with CLAR is similar to what General Motors (NYSE:GM) did with its new Cadillac CT6, a car that has been praised for its light weight and surprisingly (for a big Caddy, at least) sporty handling.

From a car-enthusiast perspective, at least, the key downside of battery-electric technology is that battery-electric cars are heavy. A Tesla Model S P90D weighs 4,842 pounds, according to Car and Driver. That's roughly 700 pounds more than a Cadillac CTS-V, and while electric torque helps the Tesla edge out the Caddy in a drag race, the Cadillac feels much nimbler in the corners.  

Why it's too early to say whether BMW will dent Tesla's sales 

Plenty of questions remain, of course, starting with this one: If BMW does build an electric 3 Series, will it be intended for mass production, or just a limited-volume offering? Or put another way, will BMW be able to get enough batteries in the near term to give Tesla a serious sales challenge?

That's far from clear right now. It's a safe bet than any all-electric 3 Series will deliver on BMW's brand promise, with exciting performance (and not just in a straight line) combined with a well-thought-out premium interior and a high level of fit and finish.

But no matter its performance (or fit and finish), whether the electric BMW 3 Series can really challenge the Tesla Model 3 may come down to two questions: What will it cost, and how many can BMW make? 

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