Elmiraj: How Cadillac Could Give Tesla a Run

NEW YORK (TheStreet) -- On the surface, things are looking great at Cadillac right now. U.S. sales are up 30% year over year. The new models -- ATS, ELR and CTS -- are getting rave reviews.

That's basically what BlackBerry ( BBRY) proclaimed in August 2007.

Just like the smartphone industry in 2007, the automobile industry in 2013 has just seen the advent of a major technological inflection point. In 2007, BlackBerry, Nokia ( NOK), Microsoft ( MSFT), Motorola Solutions ( MSI) and SonyEricsson were the complacent incumbents.All of these companies -- BlackBerry, Nokia, Microsoft, Motorola and SonyEricsson -- have spent most of 2008-2013 kicking themselves for not responding earlier to Apple ( AAPL). They laughed in 2007, when they should have panicked.

In Silicon Valley, we knew this. We knew it because the iPhone almost immediately became the dominant smartphone OS among the technology influencers. Any walk down Palo Alto's University Avenue in August 2007 would have confirmed this.The rest of the country -- and much of the rest of the world -- lags Silicon Valley by three to five years in technology adoption. And now, the car is suddenly not just a car anymore. It's technology, too.

Starting in late 2012, the luxury car market in Silicon Valley took a radical turn. For those of us paying attention, brand-new BMW 750, Mercedes 550 and indeed Cadillac became an extinct species in the neighborhoods and zip codes around Los Altos.

Almost overnight -- even faster than in the notoriously fast-moving smartphone market -- Tesla ( TSLA) went from 0% market share to 100%. Buying a gasoline car became as socially acceptable as showing up to a business meeting with a 1999-style Nokia dumbphone.

Now, one year later, the only Cadillacs you see are the rare Hertz rental ATS's, as well as a couple of Escalade SUV's parked outside each of Silicon Valley's five finest hotels. Cadillac may be selling 30% more cars than in 2012, but this is Cadillac's canary in the coal mine, just like the June 2007 iPhone launch was BlackBerry's canary in the coal mine.

Which brings me to the Elmiraj. This is a concept car Cadillac showed for the first time last week. It's a very large ultra-luxury coupe, with Mercedes S-Class Coupe, BMW 6-series and Bentley Continental GT being the main intended competition.

Let's get one thing out of the way first: Everyone seems to agree that the Elmiraj is among the most beautiful automobile creations we have ever seen. The exterior looks 100% production-ready, too.

In concept-car form, the Elmiraj is based on a conventional type of drivetrain: A 4.5 liter V8 up front, driving the rear wheels. This is supposedly what will form the basis for Cadillac's largest sedan a year or so down the road.

If the Elmiraj makes it into production like this, the automotive press will cheer. However, the automotive press consists mostly of old farts whose passion for automobiles was formed around the time of Steve McQueen's 1967 Bullitt. That's when car tech meant 8-track tape decks.

The problem is that while a 4.5 liter V8 Elmiraj will cause the automotive press to cheer, they are fighting the last battle. Actually, more like three battles past, sort of like Vietnam.

The other problem is that while the Elmiraj competes for being the most stunning automotive design to date, it will not sell in Silicon Valley. With the rest of the world looking like Silicon Valley in three to five years, that's a problem.

Cadillac needs to skate to where the puck is going, not where it has been since 1967 -- or 1907 for that matter. We simply cannot rewind the clock to the flip-phone era and think that we can compete with iPhone and Android.

The good news for Cadillac is that it has all the resources to fix this problem ASAP. GM ( GM) is selling both pure electric cars (Chevrolet Spark EV) and range-extended electric cars (Chevrolet Volt). Cadillac's coupe version of the Volt -- the ELR -- enters production the week after Thanksgiving this year.

Much of Tesla's market cap today can be ascribed to the scarcity value of offering the market's only large luxury electric car. If Cadillac decided to build the Elmiraj on a beefed-up Volt/ELR platform, it would likely punctuate several billions of dollars of Tesla market cap -- and perhaps add a few billion to GM's own market cap.

In other words, a decision to electrify the Cadillac Elmiraj could be GM's largest multi-billion dollar market-cap win in more than 50 years.

Or, Cadillac -- just like BlackBerry and Nokia in 2007 -- could just ignore the new technology shift and wait to hit the wall within the next three years.

Of course, electrifying only the Elmiraj will not be sufficient for Cadillac's Tesla challenge. Many people I know who already have a Tesla, Chevy Volt or Nissan LEAF are asking for an electrified Cadillac Escalade SUV. The biggest hole in the luxury market right now is a 3-row, 6-7 seat, electrified SUV/minivan.

You might be asking: What about all-electric vs. Volt-style range-extended electric? In brief, you need to offer both, not necessarily as variants of the same model, but rather in different cars optimized for each architecture.

GM has had a huge success in record customer satisfaction for the Chevy Volt, so it's clear that this architecture could be leveraged into larger vehicles such as the Elmiraj, SUVs and minivans. It's also clear that the market for all-electric cars is growing like weeds, as evidenced by Tesla.

Cadillac would do itself a favor and avoid launching 100-mile range electric cars, such as what BMW and Mercedes are doing in the coming months. An all-electric car needs to deliver at least 250-300 miles of range, in order to compete with Tesla. GM can do this: It's not a matter of technology; it's a matter of will.

Going forward, Cadillac has a choice: Look backward to 1967, or pre-World War I, for inspiration, or look forward to the new technology. The self-serving automotive press will praise it for doing the former, whereas the actual customers will only buy Cadillac if it manages to build upon the Volt and ELR in order to challenge the new undisputed market leader: Tesla.

At least with the Elmiraj, we now know Cadillac will be praised as having the industry's most beautiful exterior design. Whatever any other doubts may be, the one thing we now know is that Cadillac's exterior design team is second to no one, as evidenced by not only the Elmiraj, but also the Ciel concept car from two years ago.

Changing the Elmiraj concept car drivetrain to an evolved and more powerful version of the Volt/ELR is a very easy proposition for GM. Customers only care about that it plugs in; the car otherwise looks the same.

In many ways, the Elmiraj becomes the ELR's big brother. Harkening back to the 1967 Cadillac Eldorado, Cadillac may simply want to call it the Electric Dorado. The rest of us -- investors and consumers alike -- may simply call it the Tesla Killer.

At the time of publication, Wahlman was long AAPL and short MSFT.

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

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