Detroit Auto Show: Tesla CEO Announces Smart EV Deal

(MoneyWatch)  DETROIT -- Tesla Motors CEO Elon Musk announced on Jan. 13 that his company will provide batteries and chargers for a battery-powered version of the tiny Smart fortwo built by Daimler AG, the maker of Mercedes-Benz, with an eye toward U.S. sales in a couple of years.

Based on its size and egg-shaped appearance, people often assume that the Smart car is an electric vehicle, but it's not. The U.S. version, which debuted a year ago, is powered by a small, but otherwise conventional gasoline engine. In Europe, there's also a diesel Smart. Even without an EV, Smart handily outsold its U.S. sales targets in 2008.

Tesla is based in San Carlos, Calif. It is a start-up with a single product until now, the Tesla Roadster. The company also has a sedan in development. The Smart relationship lends Tesla some additional credibility, and a financial shot in the arm. At the Automotive Outlook Conference hosted by the Society of Automotive Analysts, Musk declined to comment whether Daimler provided financial support beyond the deal to buy batteries and chargers, such as taking a stake in Tesla.

Another California company, ZAP! Car, was offering an unauthorized version of the Smart car retro-fitted with battery power earlier, but dropped it under pressure from Daimler. Daimler didn't develop its own Smart EV until recently.

Musk said the initial contract with Daimler is for 1,000 units for a real-world test fleet, but he hopes it will lead to much higher sales volumes, possibly "tens of thousands" of vehicles a year. There are no details yet on which markets get the 1,000 cars, nor when they could be launched in the United States. Smart in recent months announced a couple of much smaller electric-vehicle test fleets in Europe.

Daimler will gather data on the test fleet for a couple of years, Musk said. "They will identify bugs, issues, improvements that need to be made, then ramp up production. By the time they do that, it will probably at least a few years from now," before higher volume production, Musk said.

"We are not interested in a test demonstration, anything like that, and to be honest, neither are they (Daimler). They see the electric Smart as being a very substantial part of Smart sales," he said.