Sunday, September 11, 2016

BMW In A Quandary About Its Electric Car Future

The Paris auto show is coming up later this month, but the head honchos from BMW won’t be there. Instead, they will be huddled together, trying to figure out if it is possible to actually make a profit building and selling electric cars. BMW was one of the early leaders in the electric car game. Its innovative i3 turned plenty of heads with its carbon fiber structure and off beat styling. Its i8 plug-in hybrid sports car also got rave reviews.
BMW i3 in Protonic Blue
But the problem with the world is that things never stand still for very long. Sales of BMW’s “i” cars have been disappointing, to say the least. The company has yet to turn a profit on them and the number of potential competitors has increased exponentially since the i3 first debuted. Upper management is at a loss to explain how Tesla convinced 400,000 people to plunk down $1,000 to reserve a Model 3 when it can’t find buyers for its electric car offerings.
For more than a year, we have heard conflicting rumors from BMW insiders about what the next “i” car will be. An electric 5 Series, perhaps? Or an SUV? Bigger? Smaller? More money? Less money? We have heard it will arrive anytime between 2018 and 2023. Clearly, there is confusion in the upper echelons of the company. Which is why BMW management will be skipping the Paris show this year so they can meet and come up with a coherent strategy for the future. That will be a welcome change.
The latest reports from BMWBlog and Reuters suggest that company leaders are deadlocked on a proposal to re-issue the electric MINI. Brand managers for MINI say it will cost too much to develop an electric version. Stuffing an electric powertrain into the existing MINI will require significant changes to the existing chassis — changes that will cost lots of money. The same goes for altering the i3 chassis to make it into a MINI.
Part of the problem is that for the past 25 years, BMW has led the automotive industry in profitability. Management is reluctant to forfeit that leadership position to build electric cars that make less money or are unprofitable altogether. BMW is not Tesla, which is willing to lose money today to make money in the future. It’s a problem for BMW, one that has no clear solution.
“How does the company expand into the loss-making segment of electric cars and retain its industry-leading profitability. That’s essentially the question facing management now,” a source inside the company reports. That is the problem with disruptors like Tesla. They aren’t concerned with the status quo or next quarter’s earnings report, but BMW management definitely is.
Part of the problem with being an old line, established company like BMW is that management tends to get top heavy with senior executives. Carsten Breitfeld, who headed the i3 project, has left the company to Future Mobility Corporation, a Chinese start-up. “I worked in BMW i for some years and we did some new things,” he told Reuters in China. “After doing this first step, BMW stepped back and waited for what would happen in the market.”
Breitfeld, who took several other former i division employees with him, says now he deals with maybe 10 other people. At BMW, more than 500 were involved and it took 6 months to a year to make a decision about anything.
The big powwow at the end of September is supposed to create an electric car strategy for the Bavarian car company, one that balances innovation, costs, and profitability. In a sense, BMW is one of the dinosaur, legacy companies that Tesla Motors is trying to shake out of their complacency and lethargy. Its painful for those who are used to being on top to be pushed around by the new kids on the block.
But that is the essence of the capitalist model, which tears down old companies on one hand so new, more efficient enterprises can take their place. It may seem impossible to think of a world without BMW in it, but if the company’s managers don’t figure out how to adapt to the inevitable changes coming to the marketplace, that’s precisely what could happen.

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