Electric Vehicles

At BMW, Recharging the E-Car Strategy

Krueger mirror Christoph buesse visum
Harald Krüger is since April the new CEO of German automaker BMW. Mr. Krüger, who began as an apprentice at the Munich firm in 1992, is bringing in a more ambitious, aggressive e-car strategy.
  • Why it matters

    Why it matters

    BMW needs to revise its strategy because it faces a sharp drop in sales growth in China and its electric vehicles, developed at great expense, aren’t selling as well as hoped.

  • Facts

    Facts

    • BMW’s new chief executive, Harald Krüger, has launched a strategic review to meet the challenges of sluggish electric car sales and a slowdown in China.
    • BMW plans to launch new electric car models to boost sales. It plans a new version of the “i3” and a new, beefed up sports car hybrid, the “i9.” It is working on an all-electric SUV.
    • BMW plans to incorporate its new electric drive and carbon fiber technologies in all brands, including Mini and and Rolls-Royce, to dilute costs.
  • Audio

    Audio

  • Pdf

In Germany, BMW was the first automaker to sell an all-electric car, the i3, in a market where sales of gas-burning SUVs, not e-cars, are growing. Being first didn’t bring BMW success — sales of its electric car and a hybrid sports car, the i8, have been sluggish and BMW is now conducting a strategic review to devise a way to boost sales following years of costly development.

The change in course is the first big management test for Harald Krüger, the career BMW executive who took over at the Bavarian automaker in April, succeeding Norbert Reithofer, who launched the company’s first e-car line in 2013 ahead of rivals Volkswagen and Daimler.

As is often the case in Germany, where former chief executives end up supervising their successors, Mr. Krüger is plotting a way forward under the watch of Mr. Reithofer, who left the CEO job to become chairman of BMW’s policy-setting supervisory board, which among other responsibilities, hires and fires the chief executive.

“Letting go” can be hard for a chief executive, as Manfred Schneider, one of Germany’s most experienced captains of industry, freely admits. Mr. Schneider spent 10 years as chief executive of drugs maker Bayer and then 10 years as its supervisory board chairman.

He recalled catching himself trying to interfere in day-to-day operations, until he and his successor as chief executive, Werner Wenning, came up with a solution from the world of soccer: Whenever Mr. Wenning thought Mr. Schneider was getting too involved, he’d hold up a yellow card.

Sometimes even a red one.

Trouble is often pre-programmed. The old boss doesn’t want his successor to undo his legacy. And the new boss doesn’t want to offend his predecessor, so he or she will be hesitant — at first. That’s why German corporate law since 2009 stipulates a two-year cooling-off period, forcing a chief executive to wait two years before moving into the supervisory board.

Letting go can be hard for a chief executive, as Manfred Schneider, one of Germany’s most experienced captains of industry, freely admits. Mr. Schneider spent 10 years as chief executive of drugs maker Bayer and then 10 years as its supervisory board chairman.

BMW got around that because the Quandt family, its majority shareholder, has more than a quarter of voting rights, which entitled it to circumvent the ruling. The Quandts wanted Mr. Reithofer to become supervisory chief immediately because they were worried that industrial group Siemens might poach him.

But at BMW, the old and new boys are unlikely to clash. Mr. Krüger plans to remain faithful to Mr. Reithofer’s bold electric car strategy. But there will be changes. There have to be.

While he was CEO, Mr. Reithofer spearheaded the carmaker’s development of electric vehicles. But they aren’t selling well. In the first half of 2015, e-cars accounted for just 12,500 of the 1 million cars BMW sold.

Added to that, profits in the car sector are under pressure and a price war is looming in the top market, China.

 

 

BMW Mercedes Audi Carmakers Operating Margin-01

 

So Mr. Krüger, the new chief executive, has launched a strategic review, and has scheduled a series of meetings with top executives at BMW’s conference center at Lake Tegernsee south of Munich this year.

The review will focus on how the “i” project launched by Mr. Reithofer in 2009 to build electric vehicles with carbon fiber chassis, can be made profitable. BMW’s Chinese business is no longer yielding the huge profits with which it used to cross-subsidize expensive development programs like “i.”

“We are repositioning in order to safeguard the company’s future,” said Mr. Krüger. But with Mr. Reithofer looking on, he can’t depart too far from his predecessor’s strategy.

Sales of the “i3” have been slow; BMW is asking €35,000 for a car that has a range of just 130 kilometers.

He isn’t inclined to. E-cars, Mr. Krüger believes, still hold the key to BMW’s future.

BMW, like domestic rivals Audi and Mercedes, believes China will be the world’s most important market for auto innovations in the coming years. The carmaker is convinced that electric cars and new digital technology will get their breakthrough in Beijing and Shanghai.

 

Reithofer Krueger 2 Source Ullstein
In April, Harald Krüger, seated, became CEO of German automaker BMW, succeeding Norbert Reithofer, standing, who remains his de facto boss as chairman of BMW’s policy-setting supervisory board. Together, the two are revamping BMW’s e-car strategy, which has seen only lackluster sales. Source: Ullstein

 

Mr. Krüger feels that BMW is basically well prepared for the changes. After all, BMW started developing electric cars before its rivals. The aim wasn’t just to meet tighter European Union limits for auto emissions but also to circumvent looming restrictions in China that will in the long term make it impossible to sell pure internal combustion vehicles there.

Mr. Reithofer claimed BMW would “revolutionise” the market for electric cars with its “i3” carbon fiber model rolled out in 2013. He even bought a controlling majority in carbon fiber specialist SGL Carbon, pipping rival VW at the post.

 

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But the €3 billion, or $3.3 billion, investment has yet to pay off. Sales of the “i3” have been slow; BMW is asking €35,000 for a car that has a range of just 130 kilometers. Even if demand were greater, BMW would find it hard to achieve economies of scale because the carbon fiber chassis is complicated and expensive to make.

“We can’t built 100,000 or 200,000 cars like this,” said one member of the supervisory board.

But Mr. Krüger is convinced that BMW will need to produce large numbers of electric cars by the end of this decade. That’s why BMW is working on a new version of the “i3” with a higher range per battery charge, and also plans to replace its “i8,” a hybrid sports car, with a more powerful “i9.”

BMW started developing electric cars before its rivals. The aim wasn’t just to meet tighter European Union limits for auto emissions but also to circumvent looming restrictions in China that will in the long term make it impossible to sell pure internal combustion vehicles there.

The company is also working on a fully-electric sports utility vehicle that will have less carbon-fiber than the other models. Its market launch is scheduled for 2018 to rival offerings from Audi and Tesla.

The new cars will be presented to the BMW supervisory board headed by Mr. Reithofer in September, Handelsblatt has learned.

BMW plans to spread the high development costs for electric drive systems and carbon fiber by integrating the technology in all its brands, including the Mini and the Rolls-Royce, company sources told Handelsblatt.

Mr. Krüger knows that he must act now to make his mark at BMW. He’s only 50 and could spend two terms at the helm, which would take him through to 2025. And he wants to be able to present rising profits and strong development progress to his predecessor.

China is BMW’s biggest market and its biggest challenge. Its unit sales there rose by a meager 2.5 percent in the first six months after 16 percent growth in the year-earlier period.

 

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Underscoring China’s continued importance to BMW, Mr. Krüger flew there on Tuesday to tour the company’s Shenyang plant, hold talks with the mayor of Beijing and talk to dealers.

“Competition is intensifying,” said Mr. Krüger. BMW, like its rivals, is trying to maintain its Chinese market share by offering discounts. It has also reduced its local output of the 3-Series and agreed to pay out over €700 million to dealers to share the cost of overstocked showrooms.

“If the challenges increase in the Chinese market, we can’t rule out an impact on our forecasts,” said Chief Financial Officer Friedrich Eichiner. For now, BMW is still predicting that its 2015 unit sales, revenue and profit will all best last year’s record levels.

But China, said Mr. Krüger, will remain an important market over the long term “with potential for growth.”

 

BMW Mercedes Audi Demand for German Luxury Cars-01

 

 


Video: Mr. Krüger at the start of the i3 production.
 

 

Markus Fasse is a Handelsblatt editor specialized in the aviation and automobile industry. Dieter Fockenbrock is Handelsblatt’s chief correspondent for the companies and markets desk. Yasmin Osman is a financial editor with Handelsblatt’s banking team in Frankfurt. To contact the authors: fasse@handelsblatt.comfockenbrock@handelsblatt.com and osman@handelsblatt.com

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