Easily the biggest disappointment of Tesla’s Investor Day this month came about 40 minutes into the nearly four-hour-long presentation when execs buried all hope that a new entry-model electric car would be revealed. Elon Musk has been touting plans for a $25,000 car ever since September 2020, yet no one has seen so much as a computer-generated image or stylized pencil sketch, let alone a real-life design study.
Two weeks after Tesla failed to pull a rabbit out of its hat, rival Volkswagen swooped in to steal Musk’s thunder. On Wednesday, the VW brand unveiled the ID2 hatchback. While still a study, it gives a very real glimpse at a production-version electric car for the masses that should cost less than €25,000 ($26,500), drive 450 kilometers (280 miles) on one charge, and be as roomy as a compact when it hits the market—currently scheduled for the end of 2025.
To increase affordability and appeal, VW switched its EV platform to front-wheel drive; planted a 226-horsepower electric motor inside; and endowed it with a 490-liter (over 17 cubic feet) trunk that can swallow more than the much larger Tesla Model 3 even when its front trunk is included.
A common criticism of EVs made by incumbent carmakers is they sell—at a loss—the minimum number needed to comply with regulatory CO2 targets. Volkswagen claims however it will have an economic incentive to sell it in large volumes.
“We cannot have margins that are below 6%,” VW brand CEO Thomas Schäfer told reporters in Hamburg on Wednesday evening, confirming the ID2 “definitely can” hit that mark.
Reasons why I do not take the ID.2all seriously
#1 VW never delivers the concepts they presented
#2 It’s the outdated MEB tech & software full of issues
#3 In 2025 Tesla has delivered its next gen for a full year
#4 VW plans 4% margin this year & a 25k model = negative margin
— Alex (@alex_avoigt) March 16, 2023
After the polarizing ID Life concept car from September 2021, this marks VW’s second attempt at envisioning a small and affordable zero-emission hatchback.
By comparison Musk drew a blank during Investor Day on March 1, the last day Tesla’s shares traded above $200.
Fans of the brand had an excuse handy: the so-called Osborne effect. They have argued Musk didn’t want to reveal what his $25,000 car might look like, the theory goes, because prospective Tesla customers would hold off purchasing a Model 3 or Model Y. Instead it sufficed that execs discussed how they intended to cut costs for the car.
Volkswagen is unlikely to sell the car in the U.S.
While new models inevitably cannibalize some sales of existing ones, there are two flaws to this argument.
For one, the effect is only truly pronounced in the cast of replacement models rather than those that enter an all-new segment at a different price point. Someone who can afford the minimum $42,990 for a Model 3 won’t likely be shopping for a vehicle at nearly half the price.
Secondly, Musk has a documented track record of missing his launch dates. Customers who dropped a $250,000 deposit on the Founders Edition of the Tesla Roadster way back in November 2017 still have no idea when or even if the car will ever be available. Delaying the purchase of a Tesla to await a new model based on nothing more than a concept and potential launch date is a risky proposition.
Consequently, the Tesla community quickly went on the attack against Volkswagen. Led by Tesla’s resident German influencer, Alex Voigt, they attacked VW’s own track record of delays, such as the electric Porsche Macan crossover set to debut a year late owing to software problems.
Voigt recommended EV buyers judge Volkswagen based on “what they deliver, not what they promise,” arguing it would just be yet another loss-making EV from an incumbent carmaker.
“It’s likely a compliance car produced in small numbers,” he wrote on Thursday.
Musk fans like Voigt can rest easy, however.
The ID2 is mainly an insurance policy for Europe as the days of VW’s small Polo hatchback are numbered. Strict new Euro 7 emissions rules that govern tailpipe pollutants such as poisonous carbon monoxides are expected to go into force in 2025 and can potentially price the Polo out of the market.
Set to be built outside Barcelona using a battery assembled from VW’s own “unified” cells, the ID2 is a bigger threat to the Polo than to Tesla.
Speaking to Fortune, VW Group of America boss Pablo Di Si, said that if the ID2 were to ever wash up on U.S. shores, it would need to be equipped with costly all-wheel drive for better traction on snow and ice in major metropolitan areas like New York City.
“It would be a niche vehicle for us,” he said.