BMW Stock Slides, As It Bets On Electric Cars

By · November 05, 2013

Arndt Ellinghorst

Arndt Ellinghorst, head of automotive research at ISI, today analyzed BMW’s vehicle electrification program, on Bloomberg Television.

BMW’s stock fell as much as 4.8 percent today to 79.56 euros, as the company forecast weaker profitability in the fourth quarter due to investments in new models, including the i3 electric car. It’s unfortunate that an investment in electric cars is bearing the burden of the lower stock price, but on a broader level, it signals the important of the electric “i” brand for BMW.

BMW’s investment represents a much-needed infusion of new blood into the EV space—as we approach the third anniversary of the introduction of the Nissan LEAF and Chevy Volt. The EV story so far has been dominated by American and Japanese automakers. Don’t look now, but it appears the Europeans—led by BMW, with Volkswagen not too far behind—are about to start making waves.

The introduction of the i3 and VW e-Golf could be the major stories of 2014. Earlier today, Arndt Ellinghorst, head of automotive research at ISI, shared important insights into BMW’s vehicle electrification program—and the positioning of European carmakers in the plug-in car market—in an interview with Guy Johnson of Bloomberg Television’s “The Pulse.”

I transcribed the key parts of the interview below. There are two things that jump out to me—both of which, according to Ellinghorst, signal an advantage (and challenges) for Europe in terms of EVs. First, BMW is making a big bet on the i brand because it wants to get ahead on meeting strict European emissions regulations. And second, Ellinghorst believes that European carmakers have better manufacturing when it comes to things like integrating batteries and drivetrains. Meanwhile, the major challenge is an entrenched German mindset focused on internal combustion.

Analyst: A Huge Bet

Guy Johnson: You could always argue that, looking at the investment that BMW is now making into electric vehicles, that it is putting its A Team into this space. It’s certainly spending a lot of money.

Arndt Ellinghorst: Yes, they are spending more than a billion euros on the i brand. They clearly have the most revolutionary approach to electric mobility out of the traditional carmakers. They are taking a huge bet. I think that the market should appreciate that, but you see what happened today. The stock is being slashed 4 percent because the company is spending more on electric vehicles.

Do we understand the dynamics of how much money will have to be invested into electrification to meet the targets that German wants and to meet the targets the car industry wants?

What’s very impressive actually is, if you look at European emission regulations of 130 grams of CO2 [per liter] by 2015, pretty much every carmaker is already meeting all these targets. Now, we’re likely moving to 95 grams by 2020 or 2022. In order to meet these targets, you need increased electrified powertrains. BMW is clearly the most aggressive in that area.

They are taking a bet with this new brand and the new manufacturing technology, carbon fiber. But again, I think the market should appreciate that, and not hammer the stock down.

How easy is it to get talent to do this? I was talking with Elon Musk. He was saying that there’s better talent over in Europe when it comes to…the electrification story. Is it possible that Europe will have an advantage in this space?

I think Europe has an advantage building cars. Full stop. It’s still important to integrate the battery into a car. It’s still important to manage all the drivetrain and all the different features, service network and so forth.

It’s the mindset of traditional carmakers, especially in Germany, has to change. Of course, there’s a huge investment going into traditional internal combustion engines.

And also there’s a fear, if you really think through the whole electric vehicle, there’s a lot of stuff disappearing from cars, that could mean a lot of jobs lost in the auto industry.

Comments

· · 50 weeks ago

There is no doubt that transition to electric cars is expensive and difficult for car makers. But they really don't have much choice. As the years pass, oil is only going to become more and more expensive such that electric cars will become more and more popular and necessary. And if a car company does not move on EVs now, they risk being left behind.

· · 50 weeks ago

I'll believe BMW and VW are serious about selling electric cars in the US when I see BMW and VW offering electric cars for *sale* (not just lease) in more than just a few key states.

Until then I'll remain cautiously pessimistic.

· · 50 weeks ago

Given the newly increased state and federal spending on healthcare, it's unlikely that states and the US will do anything other than continue the trend of increasingly stringent emission standards.

As electrics continue to trend toward price parity with ICE, consumer demand will grow. Increased range will accelerate the trend.

The only question is what year does the inflection point occur?

Laggards, or those who bet on the hydrogen ifrastructure being in place, will be scrambling to catch up. It will likely be a debacle as those without EV tech and high volume battery suppy contracts lose market share.

It willbe interesting to see when auto company shareholders start to agitate for "the Tesla effect"

· · 50 weeks ago

It's sad that their i sub-brand was blamed for the problem, they have so many new models in development it can't just be the i3 and i8's fault. They're launching the 2-series coupe, convertible, and the rumored 2-series Gran Coupe. The X4, the Active Tourer in both five and seven seat versions, the next generation X1, 5-series, and 7-series have been spied testing. The 7-series and X5 have both been spotted in plug-in hybrid form, there's also the launch of the M3 and M4 and the M4 convertible. Someone needs to tell them to slow down, not point their finger at their electric efforts, it's their most high profile launch but it is by no means their only project.

· · 50 weeks ago

Well, BMW is investing for the long term. Stock markets are just shortsighted most of the time...

Good for BMW.

Those stock analyst that complains about it are the same one that said Volt would lost over $60K per car for GM...

In my college experience, the idiots who can barely do 2nd order derivatives are usually finance majors....

· · 50 weeks ago

Smidge: The i3 & i8 will be available in every state in the US. It's possible that for the first couple months they may limit sales to the largest cities because of supply issues but by the end of the year they will be selling them everywhere for sure. They will also be available in just about every country BMW sells cars in. I can't say much for VW though, unfortunately. They really haven't been too clear about their e-up and e-Golf plans.

· · 50 weeks ago

How do you think the market would react if BMW had launched a Model S competitor ?
Also here seems to be little info on the heating system for the I3 , is it heat pump?, will the I3 offer a heated steering wheel? Lastly I own a Leaf , my lease is up next year and the one thing that has me concerned , we finally have DC fast chargers in northern Va. They are Nissan branded units, not sure they will ever be compatible with sae combo.
that means time and mone has to be invested. I cant imagine plunking down for an I3 if none of the local DCFC units are sae combo.

· · 50 weeks ago

The automakers who are making EVs seem to be filling the gaps, rather than crowding one narrow space, which is good for them, and good for the market.

I believe that the i3 will be very popular. Double the electric range of the Volt, yet still has range extender. Same range as Leaf, but more upscale. Has quick charge option, which Focus and Volt lack.

Thoroughly modern car, so will get a lot of attention.

· · 50 weeks ago

I believe a key diference between Volt and I3 will show during REX mode.

speed and performance will likely be limited in this mode on the I3

· · 50 weeks ago

@Tom Moloughney

"Will be" != "Are"

· · 50 weeks ago

@Smidge204:

"not shipping immediately to all dealers everywhere"
!=
"no plans to ever sell outside of states with ZEV quotas"

· · 49 weeks ago

@vike1108:

Yes, and just because there are plans today doesn't mean those plans will come to fruition tomorrow. Any number of things could happen that would result in the plans for a nationwide rollout being scrubbed.

Don't get me wrong, it's not like I'm HOPING they don't sell them or anything like that, but it needs to actually happen before I'll get excited about it. It's all just gossip until then as far as I'm concerned.

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