Will a BMW Electric Car Take Down Tesla and Nissan?

BMW  (NASDAQOTH: BAMXF  ) recently made two big announcements in regards to the electric vehicle (EV) market. First, it would boost its orders of Samsung (NASDAQOTH: SSNLF  ) SDI's EV battery cells by 20% to 30% in 2016 from 2014 levels. Second, it promised to share its EV technology with fellow automakers, just as Tesla Motors (NASDAQ: TSLA  ) did last month -- a move that could lower battery prices across the industry.

BMW i3. Source: BMW.

BMW clearly intends to capitalize on the growth of the EV market, which could triple between 2013 to 2020 to 7% of all car sales worldwide, according to Navigant Research. This means that two of the largest players in the BEV (battery-electric vehicle) market -- Tesla and Nissan (NASDAQOTH: NSANY  ) -- could face fierce competition from BMW's i3 BEV and i8 PHEV (plug-in hybrid EV) over the next few years.

How BMW can take on Tesla and Nissan
BMW is a relative newcomer in the EV market. The i3, which starts at $41,350, launched in Europe last November and in the U.S. in May. That makes it pricier than the $28,980 Nissan Leaf, yet cheaper than Tesla's Model S, which starts at $69,900. Federal and state incentives can reduce the prices of all three vehicles by more than $7,500.

Tesla's Model S (L) and Nissan's Leaf (R). Source: Company websites.

Considering that the Leaf launched in December 2010, and the Model S launched in June 2012, sales of the i3 in the first half of 2014 are quite impressive compared to both vehicles:

Company

BEV

First half 2014 sales

BMW 

i3

5,396

Tesla

Model S

7,200-7,400 (estimated)

Nissan

Leaf

12,736

Source: Company and industry websites.

Tesla's cheapest Model S can go farther on a full charge than the i3 (208 miles vs. 80 to 100 miles), but the i3 has an optional $3,850 range extender that can add up to 87 additional miles -- which technically reclassifies it as a PHEV. Both vehicles last longer than the Leaf, which travels 84 miles on a single charge. Therefore, the i3 is aimed at customers who are looking for a BEV between the Model S and the Leaf in terms of range and price. However, Tesla could also completely level the playing field in 2017 with the Model III, which will have a range of 200 miles and only cost $35,000.

In the high-end market, BMW isn't tackling Tesla head on. Its upcoming i8 PHEV, which will cost up to $300,000, is aimed far above Tesla's price range, which peaks at around $200,000 for a fully loaded Model S.

BMW i8. Source: Wikimedia Commons.

But one key strength that BMW has is its brand appeal. BMW is currently the top luxury automaker in the world, outselling both Daimler's (NASDAQOTH: DDAIF  ) Mercedes and Volkswagen's (NASDAQOTH: VLKAY  ) Audi last year. BMW's Mini, while not a luxury brand, is still a popular choice among customers who prefer smaller vehicles. Mini sales rose 1.2% year-over-year in 2013 to a record 305,030 vehicles. This means that it could be fairly easy for BMW to convert existing customers to EVs like the i3 as the charging infrastructure grows.

All eyes on China
While EV makers have mostly focused on the North American and European markets, China has aggressively passed new regulation to encourage the adoption of EVs.

Earlier this month, the Chinese government eliminated the 10% purchase tax on EVs, and mandated that EVs must comprise at least 30% of all government vehicle purchases by 2016. Those measures, combined with subsidies up to 114,000 RMB ($18,367) for certain alternative energy vehicles, make China a high-growth market for EV makers. Most of these benefits don't apply to imports from BMW, Tesla, and Nissan, but foreign automakers can qualify by manufacturing the vehicles in China through joint ventures with Chinese companies. That strategy also helps foreign automakers sidestep a 25% import tax.

There are currently only 78,000 alternative energy vehicles on the road in China, mostly consisting of public buses and taxis. For Chinese consumers, domestic automaker BYD Auto, which is backed by Berkshire Hathaway, is the most well-known EV maker. But as I mentioned in a previous article, increasingly affluent Chinese customers now prefer foreign automakers to domestic ones, due to quality concerns and poor customer service.

BYD Auto's PHEV, the Qin. Source: Wikimedia Commons.

As a result, BMW, Mercedes, and Audi dominate 80% of China's premium market. All three companies currently manufacture vehicles in China, as does Nissan, but Tesla only exports its EVs to Beijing and Shanghai -- although it plans to eventually manufacture them in China as well. This means that the i3 and Leaf, helped along by local subsidies and lower taxes, could gain market share very quickly in China against BYD and Tesla.

The Foolish takeaway
The EV market is still relatively small, so the i3, Model S, and Leaf could easily coexist without competing against each other, since each brand appeals to consumers in different price ranges. The i8 might eventually lure away more affluent Tesla customers, but Tesla could still strike back with the Model R, its upcoming high-end successor to the discontinued Roadster.

But BMW's big investment in batteries, willingness to share technical knowledge, and strong i3 sales have all secured its position as a rising star in the EV market. Its brand appeal could lead to easier conversions of existing BMW and Mini owners, and its established luxury market and manufacturing facilities in China could lead to much higher i3 and i8 sales in the future.

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to invest in this megatrend. Click here to access our exclusive report on this stock.

 


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