Handelsblatt Exclusive

BMW Set to introduce electric sedan

  • Why it matters

    Why it matters

    BMW, once a pioneer in electric vehicles, has fallen behind Tesla. It hopes to close the gap with an all-electric version of its 3-series sedan.

  • Facts

    Facts

    • BMW will unveil an all-electric version of its 3-series sedan at Germany’s premier auto show in Munich this September.
    • BMW plans to launch all-electric versions of the mini, the X3 SUV and the 3 Series in 2019 and 2021.
    • BMW aims to produce 100,000 electric vehicles this year.
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    Audio

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The 3 Series is getting an electric makeover. Source: PR

BMW will introduce an electric sedan model at Germany’s premier auto show in Munich in September with a range of at least 400 kilometers, designed as a direct competitor to Tesla’s Model 3 sedan, Handelsblatt has learned from company sources.

BMW’s own 3 Series is its most lucrative line. The decision to offer the line as a fully electric model is seen as a direct response to the success of Tesla’s Model 3. BMW would not comment on the information.

Production of Tesla’s electric sedan is set to begin in the coming days but the company already has some 400,000 pre-orders. The success has made Tesla the most valuable carmaker in the United States at €54 billion, matching the market value of its much bigger German rival BMW.

BMW has already announced a shift in strategy that will see all of its current models offered as an electric alternative. The start has already been made with the smaller Mini brand and its X3 sports-utility vehicle, both of which are set to enter production in 2019.

By 2025, every fourth car sold BMW could be all-electric. This translates into 600,000 units per year.

The new strategy is BMW’s second attempt to crack the electric-car market after a false start. Under former CEO Norbert Reithofer, BMW invested €3 billion ($3.4 billion) in developing the i3 and the i8. They were both innovative vehicles with an ultralight carbon fiber body shell, but have a major flaw: The first version of the i3 had a range of just 150 km, not even a third of a Tesla Model 3. Initial sales for the i3 were bad and development costs got out of control. When Harald Krüger took over the reigns from Mr. Reithofer, he postponed the larger i5 for reasons of cost until 2021.

Since then Mr. Krüger has been on confrontation course with Tesla. BMW plans to launch all-electric versions of the mini, the X3 SUV and the 3 Series in 2019 and 2021. The automaker will also roll out plug-in hybrid models. Mr. Krüger aims to sell over 100,000 e-vehicles and hybrids this year. It’s an ambitious goal, though 95 percent of the cars rolling off BMW production lines will still have combustion engines.

To boost the number electric cars, BMW plans to introduce a production architecture that will allow the company to equip every model in every plant around the world with an electric powertrain. Every BMW will be designed to use a combustion engine, an electric or even a liquid hydrogen engine. This way, BMW can react quickly to demand for e-cars. By 2025, every fourth car sold BMW could be all-electric. This translates into 600,000 units per year.

Tesla has been successful in the premium segment with its Model S and Model X. In California, Switzerland and Norway, Tesla sales are higher than BMW’s 7 Series. This success, however, has been paid for until now by shareholder losses and one capital increase after another. With the Model 3, Tesla CEO Elon Musk is upping the ante many times over. Next year, production of the Model 3 is supposed to be 500,000 units. In 2016, the Tesla plant in Fremont barely built 83,000 cars. What did not work – namely operating in the black – with a premium model for $100,000, is now supposed to be successful with a mass-produced product for $35,000. Mr. Krüger and his team believe this to be a risky undertaking.

“We wish Tesla luck on its way to finding a sustainable business model,” Mr. Krüger said in a backhanded fashion.

“But BMW has decided to put its electric program on the back burner for now. Others performing better on the stock market is the price for this”

Arndt Ellinghorst, Evercore ISI

Despite the transformation at BMW, Mr. Krüger has promised a dividend of 8 to 10 percent. This would be the best in the automotive industry. In 2016, profits stood at €6.8 billion ($7.7 billion).

Industry experts, like Arndt Ellinghorst at Evercore ISI, feel that “BMW is the only global carmaker with a believable electric strategy,” referring to the company’s I model program. That a startup company from Silicon Valley has been valued at more than BMW can be attributed to a rally of technology shares recently. Stocks of carmakers using diesel technology, on the other hand, are under pressure. “But BMW has decided to put its electric program on the back burner for now. Others performing better on the stock market is the price for this,” Mr. Ellinghorst said.

Mr. Musk is taking the greater risk. In contrast to BMW, Tesla has invested with its partner Panasonic in its own cell-manufacturing technology. To be able to deliver the Model 3 fast enough, the first customers will have to compromise a bit. There will be only five colors to choose from and three types of wheels.

“We offered too many cool details with the Model X,” Mr. Musk said. “We were too confident.”

In July, Telsa plans to produce 1,000 Model 3 units per week. In the fourth quarter, 4,000 a week and next year 10,000 a week. To be able to deliver all these cars, production of the Model 3 will begin without the usual “soft tooling.” These are test-runs with test tools prior to production. Mistakes made in tooling can lead to expensive recalls. Once again here, Mr. Musk is doing a tightrope act without a net.

Markus Fasse specializes in aviation and automobile industry news and works from Handelsblatt’s Munich office. To contact the author: fasse@handelsblatt.com

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