TSLA Tesla Inc

By William Boston 

BERLIN -- Volkswagen AG on Wednesday took the wraps off its ID.4 all-electric sport-utility vehicle in a bid by the world's largest car maker to challenge Tesla Inc. and re-energize a problem-ridden electric vehicle strategy.

Volkswagen remains years behind its U.S. rival in developing and selling a mass market electric car. Even as it slowly catches up, Tesla has stayed one step ahead, launching better-performing vehicles and even building a new factory near the German capital, in Volkswagen's backyard.

The ID.4's predecessor, the ID.3, has been plagued by software glitches, forcing Volkswagen to sell tens of thousands of the first models in a stripped down version pending a full software update later this year or early next year.

The problems were so alarming to the company's owners that directors stripped CEO Herbert Diess of his job managing the Volkswagen brand earlier this year. Volkswagen has since undergone a sweeping restructuring of management in charge of the electric vehicle development.

Ralf Brandstätter, CEO of the Volkswagen brand, said last week that the ID.4 would have the full software package when it is available next year.

Tesla, meanwhile, has long left its own production problems behind. The company has now gone from Silicon Valley startup to a global manufacturer with one factory in China already operating and its European plant near Berlin set to start production next summer.

Some 80% of the 245,000 electric vehicles sold in the U.S. last year were Teslas. Worldwide, the company sold 367,500 cars in 2019, a 50% increase from the previous year, giving the Silicon Valley manufacturer 17.5% of all electric car sales last year.

Technologically, Volkswagen's ID.4 is full of gadgets and electronics -- advanced driver assistance, over-the-air software updates, a digital assistant that responds to the command "Hello ID" -- but the battery gets just 250 miles of range on a single charge, compared with Tesla's Model Y's 316 miles. And Tesla has long had remote software update capabilities and near autonomous driving features.

"Do we have the exact range of Tesla? No, but we have a better price point," said Scott Keogh, CEO of Volkswagen Group of America.

At a starting price of $39,995 before subsidies and federal tax credits, the ID.4 is nearly $7,000 cheaper than the Model Y, Mr. Keogh said. And the price of the ID.4 is expected to fall to around $35,000 when the vehicle is produced in the U.S. after 2022. Until then, it will be imported from Europe.

Volkswagen is well-known to American consumers, but despite a brief period of popular success in the 1960s and 1970s the company has fallen behind its Asian rivals Toyota Motor Co., Nissan Motor Co. and Hyundai Motor Co. Ltd.

Last year, Volkswagen sold 363,322 vehicles in the U.S. -- a 2% market share and a steep drop from the 1970s, when the company was selling more than 500,000 cars a year in a smaller market.

Volkswagen is a more dominant player outside the U.S. It is the biggest foreign auto maker in China, where it builds and sells more than four million vehicles a year. In Europe, Volkswagen and its stable of brands that include Audi, Porsche, Skoda, and Seat have 26% market share.

Volkswagen has made several attempts at a U.S. comeback before, including its ill-fated "clean diesel" campaign which the company admitted in 2015 was built on illegal software that allowed its diesel-powered cars to cheat emissions tests. The company's reputation tanked as the details of dieselgate, as the scandal was known, emerged.

But in 2016, the company launched the Atlas 7-seater SUV, built in the Chattanooga, Tenn., plant for the U.S. market. It has since become one of the most popular medium-size SUVs in the U.S. Last year, the company sold 81,508 Atlas models, nearly a quarter of its U.S. sales overall.

The Atlas was the result of years of trial and mostly error for Volkswagen in responding to American tastes. It also informed Volkswagen's decision to make its first electric vehicle built for the U.S. an SUV.

"The way you catch on in culture is you launch a great product and it catches fire," said Mr. Keogh.

He said the "sweet spot" in the U.S. market is compact SUVs, which is now dominated by conventional brands such as Toyota's RAV4, and is the largest part of the U.S. passenger car market.

The closest Tesla comes to that segment is its Model Y, which went on sale this year. But the Model Y is built on the same framework as the Model 3 four-door fastback sedan and is more a crossover between a sedan and an SUV.

Industry analysts expect the share of electric vehicles to outpace traditional cars in the coming years and account for up to 70% of the market by 2040.

Volkswagen is targeting annual sales of 1.5 million electric vehicles a year by 2025, about a third of which it says will be ID.4 models.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

September 23, 2020 12:28 ET (16:28 GMT)

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