The New Mercedes C-Class: A Tesla Competitor? (Update 1)

**UPDATED from 06:00 AM EST to add video interview with Mercedes Benz USA CEO Steve Cannon.

NEW YORK (TheStreet) -- In 2013, Mercedes edged BMW in terms of selling more cars in the U.S. The best-selling Mercedes -- both in the U.S. and elsewhere -- is the C-Class, which is the sedan sitting below the E-Class. A typical transaction price, which includes various optional equipment, can be between $42,000 and $48,000.

It is therefore important when Mercedes introduces a new C-Class. Coming on the back of a rapid-fire set of introductions in 2013 -- S-Class, a refreshed E-Class, the CLA and the GLA -- the C-Class completes the recent design transformation away from Mercedes' older and more conservative styling to its new look for the future.

It is more than the styling that's new with the 2015 Mercedes C-Class. In recent years, the U.S. has become the largest market for the C-Class, so production of the new car will begin in Alabama in September 2014. Mercedes' most futuristic-looking sedan, made in Alabama -- noodle on that!

I have not yet had the opportunity to drive the all-new 2015 C-Class, but I recently had a few hours to examine the interior in detail and talk to several senior Mercedes executives about most aspects of the car. Here are my initial findings:

Dashboard, center console and inside of doors: This is a supremely well-designed interior. It is elegant and modern at the same time. There is really nothing like it in the automotive industry. The center console has three round vents and a "floating" tablet above it, sort of like the smaller CLA and GLA models.

However, the C-Class has its buttons and knob groups laid into a big monoblock, sort of like the way Volvo has been doing it for many years now. This monoblock is huge in the C-Class, and when the chosen material is wood, it reminds me of the wood inside the doors of the 2014 Rolls Royce Wraith. Considering that the Wraith starts at $285,000, that's one smart design cue to show that this near-$50,000 car can actually be an outstanding value.

The exquisite design continues to the insides of the doors. The Burmester speaker grilles look every bit as expensive as they do in the $100,000+ S-Class. I hope you're getting the message here: In terms of expensive design, the C-Class punches at least one full class above its weight.

Unfortunately, the same thing cannot be said about the seats and the interior space. While generally comfortable and good overall, I found the front seats inferior to those in the larger E-Class. I also couldn't get the front part of the seats to tilt upward as much as I had wanted, a common trick for those of us with long legs.

The back seat, while an improvement of the outgoing C-Class, remains clearly inferior to the E-Class as well. Most important, there simply isn't enough headroom. While there is sufficient knee room, I also had trouble fitting my large feet under the front seats when adjusted for me.

Having a rear seat that's simply not large enough for comfort is hardly a unique trait for the 2015 C-Class. The list of generally large cars with comfortable front seats -- but with insufficient headroom in the rear seat -- is as thick as the Boston phone book. Whether Tesla (TSLA) Model S or the all-new Chrysler 200, it's all a similar disease. In comparison, the 2015 Volkswagen Golf has a nearly flawless rear seat space.

Engine-wise, the C-Class will have a variety of gasoline, diesel and eventually hybrids, at least in Europe. The initial engine availability for the U.S. was not yet announced, and the U.S. selection tends to be a lot smaller anyway.

However, here is where it gets interesting: Mercedes announced that, just as with the S-Class, the C-Class will be getting a plug-in gasoline-electric hybrid! The timing of this engine option was not announced, but it is believed it will show up in 2015 as a 2016 model.

Which kind of plug-in hybrid architecture will this be? Will it be like a Chevrolet Volt or Cadillac ELR? Will it be like a BMW i3 with range-extender? Or will it be like the models on sale or soon on sale made by Toyota (TM), Ford (F), VW, Audi, Porsche, Mitsubishi and Volvo?

Mercedes didn't tell me. But connecting the dots from many of my conversations, all indications are that the solution for all initial Mercedes plug-in hybrids will be similar in nature to those featured in models from Toyota, Ford, VW, Audi, Porsche, Mitsubishi and Volvo. So how does this kind of system work, and how does it differ from what BMW and General Motors (GM) are doing?

The C-Class plug-in hybrid would be augmented with an electric motor sized perhaps between 70 kW and 80 kW, and with a battery sized perhaps close to 9 kWh. This battery would be placed under the rear seats and/or behind the rear seat somewhere in the trunk.

That kind of electric motor would not be powering anywhere near the C-Class' full power envelope. You could drive in electric mode only if you accelerate very gently, and probably not while driving above 70 to 85 miles per hour. Obviously, adding weight in the car and driving uphill would further restrict the all-electric mode.

Even if you drove the plug-in hybrid C-Class gently, how far would the battery take you? Probably the closest comparison available in the U.S. market today is the Ford Fusion Energi, which would suggest an all-electric range of approximately 20 miles as measured by the U.S. EPA test.

It is important to understand that these 20 miles are not the same as the first 20 miles in the Chevrolet Volt, Cadillac ELR or the first 20 miles in the BMW i3 with range-extender. In those cars, the full power envelope of the car is available from a much beefier electric motor. You can floor the car 100% and full power comes from the silky-smooth electric motor.

If my assumption about the C-Class Plug-In Hybrid turns out to be accurate, it will have a far inferior experience in that regard. Mercedes -- as with Ford, Toyota, Mitsubishi, Volvo, Honda and the VW Group -- believes that the motivation for purchasing a plug-in hybrid is to utilize the electric part of the drivetrain in an ultra-economy gentle and slow mode.

In contrast, what GM and BMW are saying -- and showing with their models available in the market today -- is the plug-in hybrid driver wants to enjoy electric power just as much as the all-electric car driver. The only difference is range: Tesla can get to 200 to 300 miles of range using a much bigger battery, whereas BMW and GM have far shorter electric range before the gasoline engine kicks in.

Obviously there is a cost difference here. The Mercedes/Ford/VW approach is less expensive than the GM/BMW approach. In order to compensate for the larger electric motor, you would have to save somewhere else, presumably with a smaller range-extender. BMW has taken this approach to the extreme; GM not so much.

One interesting part of the Mercedes plug-in hybrid will be whether they can package the battery in such a way so as to not intrude on the luggage space. This is a huge issue in three cars in particular: Ford C-Max Energi, Ford Fusion Energi, and the Honda (HMC) Accord Plug-In. In those cars, the luggage space is radically diminished as a result of the battery placement.

In contrast, the VW Golf and Audi A3 are not seeing any such reduction in luggage space. Will Mercedes succeed in looking more like VW/Audi in this regard or suffer from the drawback in the Ford and Honda models? At this point Mercedes hasn't shown me yet.

The bottom line question is this: This supremely beautiful new Mercedes C-Class will come in a plug-in hybrid variant, but will it compete with Tesla? My answer is absolutely not. For some people, it's an indirect competitor but it really isn't the same kind of powertrain at all.

The clear direct competitors from a powertrain perspective will be the models from the VW/Audi/Porsche group. GM and BMW utilize far more powerful electric motors, resulting in a more expensive architecture than what Mercedes might be pursuing in the C-Class Plug-In Hybrid.

With the 2015 C-Class, Mercedes has hit an industry-high in terms of exquisite design, managing to make it feel like a "baby S-Class." On my wish list for the plug-in hybrid model are a bigger electric motor and a bigger battery than I am currently estimating.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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