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 for next-generation prototype cars. I was wearing Google ( GOOG) Glass so I could react quickly and film a movie on a second's notice. Outside a Peet's coffee shop, I got lucky.

We all know Mercedes invested in Tesla ( TSLA) a few years ago. This may have been 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 last year. However, this overall statistic is masking some worrisome signs for Mercedes.

Tesla didn't start shipping material quantities of cars until December 2012. Also, Tesla's sales has been disproportionately focused in and around its home area -- the San Francisco Bay Area. As I have reported on numerous occasions in the last half-year, the streets of Silicon Valley are littered with Teslas. Tesla's market share in Silicon Valley appears to be extremely high.

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

If you're Mercedes, this is the canary in the coal mine. It's like the doctor telling you he's found a cancer in your tummy, and he's not yet sure if you have six months to live or six years. How can you do anything but panic, seeing this X-ray?

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

Notice the silence. There is no gasoline or diesel engine in this Mercedes. It's an electric motor fed by a battery fitted into the floor pan mostly under the rear seat. Much of these new components were 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 also wouldn't go so far as to say that it's butt-ugly either. As with so many other cars, it looks better in real life than in a picture or in a video.

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

Mercedes aims to have this car available for sale, at least in California, 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 100 miles. This would put it in the same league as the equally Tesla-based Toyota ( TM) RAV4 EV -- but well below Tesla's own models. Of course, Tesla's own models start around $70,000.

That said, Mercedes had better hope this Tesla-based electric mini-minivan will help mitigate the hemorrhaging in sales away from S-Class to Tesla's corner. It would be hard to argue that what's happened to premium car sales in Silicon Valley isn't eventually going to happen in other geographies as well, at least to some degree, with perhaps 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 this year priced under $50,000, some starting at or near $30,000.

That will probably continue to mask the sales of higher-end cars to Tesla for another year or two -- just like radiation can help keep the cancer 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 as possible.

Behind the scenes, Mercedes is surely preparing an onslaught of more all-electric and plug-in hybrids that will hit the market no later than the 2016-18 timeframe. Little is known about these -- except the logic that they will have to span the entire Mercedes range and that without them the company could face total collapse in the face of Tesla's superior products.

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

That is, until Google Glass 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 no later than early 2014. Hopefully, it perform extremely well and be priced 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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