BMW’s Electric Brand Will Lower CO2, Cost A Lot, And Pay Off Big Long-Term – Forbes

Posted: Friday, May 16, 2014

Germany’s BMW is turning a costly necessity to reduce fuel consumption into a profit generating virtue.

The world’s biggest premium car maker is currently cranking up the publicity machine for the August launch of its i8 plug-in hybrid two-seater supercar. BMW recently parachuted some investment bank analysts from Europe into Los Angeles to drive the i8 and they’ve come away very impressed.

The i8 is BMW’s second vehicle in its drive for electrification, for which it has set up a separate “i” brand. The i3, a small electric city car with the option of a small-gasoline powered range extender to shore up the unpredictable battery mileage, was launched in Europe late last year.

IHS IHS Automotive analyst Tim Urquhart, who wasn’t in Los Angeles, said what started out as a loss-leader for BMW to show it took upcoming government rules slashing carbon dioxide (CO2) emissions seriously, is turning into an exercise of effective brand building.

“It’s taking huge amounts of R&D (spending) for materials, structures and power-trains. I think at the moment it’s (the “i” program) about being a mobile test bed to prove electrification techniques which are being gradually developed and honed. But what is really important, the “i” vehicles are turning into fantastic brand builders for BMW,” Urquhart said.

Last year analysts were saying the i3 programme alone would lose BMW up to $270 million a year for five years. BMW, which has reportedly spent about $2 billion on the project, said it will make money from day one.

BMW i8 getting a solar recharge, alongside i3s

BMW i8 getting a solar recharge, alongside i3s

Arndt Ellinghorst, analyst with International Strategy and Investment of London and who was in Los Angeles, sees a big long-term payoff for the BMW “i” brand. Ellinghorst estimates that the “i” brand alone could be worth 13 billion euros ($17.6 billion) although he doesn’t say when.

“This is based on 300,000 units at an average selling price of 35,000 euros ($47,785) and a 15 per cent margin would generate 10.5 billion euros ($14.4 billion) of sales and 1.6 billion euros ($2.2 billion) of EBIT (operating profit),” Ellinghorst said.

Ellinghorst agrees with the brand building point.

“BMW is the only carmaker globally, next to Tesla, taking e-mobility as an opportunity to build a business rather than just defensively using it to improve fleet average fuel economy,” Ellinghorst said.

Ellinghorst said the three-cylinder engine has been tuned to give great performance, and combined with the electric motor achieves 112 miles per U.S. gallon giving it a range of 372 miles. Annual sales of the i8 are likely to reach 3,000 a year, but could reach up to 5,000.

Morgan Stanley Morgan Stanley analyst Laura Lembke also was in Los Angeles and she was impressed too, describing the i8 as having the “ultimate halo effect”.

“Even more impressive than the car itself was the overwhelmingly positive response it evoked from the public. The market and peers may underestimate how big a brand ambassador the i8, and project “i” really is,” Lembke said.

She said despite the expense of new techniques and materials like much use of carbon fiber, they will be available for use in more conventional products. Carbon fiber developed for the i3 and i8 is likely to replace aluminum on the next BMW 7-series.

“This may be unappreciated by investors, which thus far seem to place little value on project “i”,” Lembke said.


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