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BMW Going All-Electric

By - Sep 14, 2015 at 10:52AM

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In light of ever-stricter emissions regulations, one of the world’s leading car manufacturers has announced a radical shift in production toward hybrids and EVs.

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The age of electric vehicles may finally be upon us -- or at least that's what BMW (BAMXF 0.00%) is banking on. BMW recently announced that it will convert all models to electric drive trains, range-extending engines, and plug-in hybrids over the next decade in response to a coming series of strict EU carbon emissions laws. The company's 3 Series sport sedans will even become plug-ins. The transition is a dramatic statement from one of the world's most recognized and well-regarded car brands.

The change would also be a huge shift for the company. BMW introduced the first of its eco-friendly alternative fuel i-series vehicles last year. That car, while well received by electric vehicle standards, sold less than 18,000 units worldwide in 2014. That made it the fourth-best-selling EV in the U.S. region. The fact that the car is considered a success while selling so few units shows just how far the world has to go to truly embrace EVs.

In fact, electric vehicles have consistently fallen well short of many proponents' ambitions. For instance, in 2008, then-Senator Barack Obama set a lofty goal -- seeing the U.S. field 1 million EVs by 2015. That didn't happen. As of mid-2014, the total number of EVs on the road sat just below 200,000. Research consulting firm Navigant does not foresee having 1 million vehicles on the road until beyond 2025 (when its current forecasts end). Even that figure of 1 million vehicles would be a sliver of the total vehicle market.

Time will tell what effect BMW's move to an electric focus will have, but at this stage EVs still appear very much in their infancy, and if BMW's change goes through as advertised, it could represent a seismic shift in the market. BMW is pushing forward with other electric initiatives, including its first all-electric tractor trailer. Germany has not been a major EV market in the past, but this move could change the situation going forward.

One question that BMW's announcement raises, though, is what effect a known brand name going all-electric will have on the market. It's possible that BMWs will prove to be supremely attractive electric vehicles and the announcement will jump-start that market. That seems unlikely, though, given the limited demand for the company's existing EVs. What's more plausible is that consumers may, in effect, be forced to buy an EV if they want a BMW. It is also possible that BMW's move will spur other carmakers to follow suit.

The fundamental problem with EVs so far seems to be that in many cases, consumers simply do not want the product. The electric tractor-trailer highlights one of the major reasons for that lack of interest from consumers: limited vehicle range. The BMW all-electric tractor-trailer, for instance, has a range of roughly 62 miles per charge. That is so limited that the truck will only be useful for around-town trips.

Of course, EV ranges are rising slowly, especially as vehicle weights come down, and BMW has years to improve the product. Nonetheless, it's not clear that consumers want what EU regulations are going to force them to take. Thus, if the age of the internal combustion engine really is coming to an end, it may be driven as much by stringent regulation as by genuine shifts in consumer preferences.

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