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This Electric Volkswagen SUV Is a Serious Challenge to Tesla

VW's new show car is a preview of an attractive and capable mass-market electric SUV coming in 2020.

German auto giant Volkswagen AG (NASDAQOTH: VLKAY) plans to introduce "over 30 new electric vehicles" by 2025, company officials said at the International Motor Show in Frankfurt on Tuesday. 

As expected, VW unveiled a "concept" version of one of the first -- and most important -- of those new electric vehicles at the show, the handsome crossover SUV pictured below. It's a key piece of VW's coming mass-market response to Tesla (NASDAQ: TSLA): VW expects to sell a whole lot of them starting in 2020.

Here's what we know about it. 

What it is: A preview of a mass-market electric SUV

This is the Volkswagen I.D. Crozz II, as it's officially called. It's a reworked version (hence the "II") of a show car that debuted this past spring. VW says this iteration is a close preview of a vehicle it plans to begin mass-producing in 2020.

Show cars, or "concept cars", as they're often called, generally have one of two purposes. Either they're flights of fancy, meant to show the general direction of a company's thinking, or they're previews of something the company actually intends to build.

The first I.D. Crozz was clearly the former, but this second version is much closer to the latter. It's a dual-motor, all-wheel-drive electric SUV powered by an 83 kilowatt-hour battery that will deliver a claimed range of 500 kilometers (311 miles) on the European NEDC test cycle. (That probably translates to about 250 miles of rated range under the stricter U.S. testing protocol.)

While it's clearly closer to production-intent, the I.D. Crozz II does sport some high-tech features that may or may not be available when the production version rolls out in 2020. Those include an elaborate voice-command system, self-driving capabilities, and a new air-filtering system that promises to maintain ideal climate conditions inside the vehicle no matter what's going on outside. 

VW hasn't said anything about price yet, but all signs indicate that it's scaling up to make a lot of them: Expect a starting price under $40,000 when it arrives in 2020. 

How the I.D. Crozz II fits into VW's electric-vehicle plan

The 30 electric vehicles that VW has promised to bring to market by 2025 will be scattered across the company's several brands. But VW's namesake brand is its global mass-market brand, and its hope to sell 1 million vehicles a year by 2025 hinge largely on just a few VW-brand models.

The production version of the I.D. Crozz II will be one of those. Globally, it will follow the initial VW I.D., an electric hatchback that is also set to launch in 2020 and that will establish the "I.D." electric sub-brand, but the I.D. Crozz may be the first of the I.D. electrics to be sold in the U.S. (Incidentally, VW has never quite been clear on what "I.D." stands for.) The two will be followed in 2022 by the I.D. Buzz, a modern electric take on the much-loved historic VW Microbus. (If the popularity of the show vehicle is any indication, the I.D. Buzz has the potential to be a big hit, particularly in the U.S.)

All three (and probably most, but not all, of the other 27 VW Group electrics due by 2025) will be built using VW's new Modular Electric Drive Kit (called MEB, its German abbreviation). MEB is a vehicle architecture that has been designed specifically for electric vehicles. It's highly flexible, meaning it can serve as the basis for vehicles of many different sizes, shapes, and capabilities.

In lay terms, the "modules" of MEB are pre-engineered sections of vehicle structures. A rear-suspension assembly, for instance, or a complete front-end structure designed to meet global crash standards. The modules can be combined to form the structure of a vehicle that is then given its own unique styling and features. But under the "skin," the new vehicle will share parts and engineering costs with other VW Group products, making it more affordable to create and produce.

From a business perspective, MEB will allow VW (and its family of brands) to create a wide number of new electric vehicles relatively quickly, without spending the roughly $1 billion it takes to develop a vehicle from scratch each time. 

Why can't VW bring these electric vehicles to market sooner than 2020?

Because the supply chain to build electric vehicles in mass-market volumes doesn't yet exist. Specifically, there aren't enough battery cells to go around yet. Tesla (NASDAQ: TSLA) has done a lot of work to ramp up its own supply chain, but even for Tesla, battery production is still an obstacle to greater car production volumes. One reason: limited supplies of essential raw materials. 

For VW, the challenge is stark: To build a million EVs a year, it will probably need more cobalt (a key battery ingredient) than was mined in all of 2016. Lithium is also in much shorter supply than will be needed. There's plenty of both in the ground, but it will take a few years for miners to ramp up their operations to extract the amounts needed by VW and other major automakers year after year. 

What's next for VW's electric-vehicle push? 

VW's I.D. electric-vehicle family is expected to get a few more models; VW will probably show those over the next couple of years. But the VW Group will have several new electric vehicles before the first I.D. model ships in 2020: VW subsidiaries Audi AG and Porsche are both planning to introduce new upscale electric models, with the first -- an Audi SUV -- expected in the first half of next year. 

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