The Tesla-Based Mercedes (as Seen Through Google Glass)

NEW YORK (TheStreet) -- The early bird gets the worm.

On a recent early weekend morning, I was out on the hunt fornext-generation prototype cars. I was wearing Google ( GOOG) Glass so Icould react quickly and film a movie on a second's notice. Outside aPeet's coffee shop, I got lucky.

We all know Mercedes invested in Tesla ( TSLA) a few years ago. This may havebeen the most profitable investment Mercedes has ever made --investing in a competitor nonetheless.

Sadly, for Mercedes, it is also losing sales to Tesla. Now, I know,overall Mercedes is setting sales records in the U.S. over the lastyear. However, this overall statistic is masking some worrisome signsfor Mercedes.

Tesla didn't start shipping material quantities of cars until December2012. Also, Tesla's sales has been disproportionately focused in andaround its home area -- the San Francisco Bay Area. As I havereported on numerous occasions in the last half-year, the streets ofSilicon Valley are littered with Teslas. Tesla's market share inSilicon Valley appears to be extremely high.

What this means, among other things, is that sales of Mercedes S-Classmust be down dramatically in this area. Tesla mostly competes withother $75,000-$115,000 sedans. I have not seen a single brand-new(newer than three months) Mercedes S-Class on the street in sixmonths.

If you're Mercedes, this is the canary in the coal mine. It's likethe doctor telling you he's found a cancer in your tummy, and he's notyet sure if you have six months to live or six years. How can you doanything but panic, seeing this X-ray?

Panic is what this driver did, when he saw me approach his testcar at this early morning weekend hour. Here is the 10-second videoI captured using Google Glass.

Notice the silence. There is no gasoline or diesel engine in thisMercedes. It's an electric motor fed by a battery fitted into thefloor pan mostly under the rear seat. Much of these new componentswere developed together with Tesla.

The vehicle involved is a mini-minivan, a so-called Mercedes B-Class. It's a tall car, but short. It certainly isn't pretty, but I alsowouldn't go so far as to say that it's butt-ugly either. As with somany other cars, it looks better in real life than in a picture or ina video.

Notice the good photo quality from Google Glass, by the way?

Mercedes aims to have this car available for sale, at least inCalifornia, in the first half of 2014. The price has not yet been set,but I imagine it will be below $50,000 -- even before tax incentives.

Mercedes has stated the range will be at least approximately 100miles. This would put it in the same league as the equallyTesla-based Toyota ( TM) RAV4 EV -- but well below Tesla's own models. Ofcourse, Tesla's own models start around $70,000.

That said, Mercedes had better hope this Tesla-based electricmini-minivan will help mitigate the hemorrhaging in sales away fromS-Class to Tesla's corner. It would be hard to argue that what'shappened to premium car sales in Silicon Valley isn't eventually goingto happen in other geographies as well, at least to some degree, withperhaps a two- to three-year lag.

In the near term, Mercedes is living high on the hog selling less-expensive cars. It is in the process of launching many new cars thisyear priced under $50,000, some starting at or near $30,000.

That will probably continue to mask the sales of higher-end cars toTesla for another year or two -- just like radiation can help keep thecancer away for a while. Maybe.

Eventually, though, the specter of a Tesla priced at or even below$40,000 a few years down the road has to scare Mercedes stiff. Hence,the importance of getting this all-electric car to market as soon aspossible.

Behind the scenes, Mercedes is surely preparing an onslaught of moreall-electric and plug-in hybrids that will hit the market no laterthan the 2016-18 timeframe. Little is known about these -- except thelogic that they will have to span the entire Mercedes range and thatwithout them the company could face total collapse in the face ofTesla's superior products.

Mercedes has been open about its intent to launch the Tesla-basedMercedes in 2014. It has talked about it and shown it to journalists ata controlled event in New York City. However, in real-life traffic,it's been a bit too slippery for the cameras.

That is, until GoogleGlass came in handy the other day.

Tesla 1, Mercedes 0

Also: Google Glass 1, Mercedes 0

We look forward to driving the Tesla-based electric Mercedes nolater than early 2014. Hopefully, it perform extremely well and bepriced attractively.

At the time of publication the author was long GOOG.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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