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BMW Green Policy Will Cost Plenty, But Pay Off Big Long-Term

“The market and peers may underestimate how big a brand ambassador the i8, and project “i”.
BMW is turning a costly necessity to reduce fuel consumption into a profit generating virtue with its “i” brand cars.

BMW is currently cranking up the publicity machine for the August launch of its i8 plug-in hybrid two-seater supercar, and recently took some investment bank analysts from Europe into Los Angeles to drive the i8. They came 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 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 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.

Make money from day one
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.

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 although he doesn’t say when.

“This is based on 300,000 units at an average selling price of €35,000 and a 15 per cent margin would generate €10.5 billion of sales and €1.6 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 combination with the electric motor achieves 134 miles per 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 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.

Carbon fibre
She said despite the expense of new techniques and materials like much use of carbon fibre, they will be available for use in more conventional products. Carbon fibre developed for the i3 and i8 is likely to replace aluminium 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.

“(the “i” project) encompasses an almost revolutionary vehicle architecture, as well as sustainability-focussed production approach. At the core of the project is once again a so far unseen priority on extreme mass reduction. Lightweight construction is especially important for EV’s because alongside battery capacity, vehicle weight is the limiting factor for operating range and driving dynamics,” Lembke said.

Lembke pointed out that carbon fiber is 30 per cent lighter than aluminium and 50 per cent lighter than steel. At the moment it costs about 20 times more than steel. Slashing this cost is a BMW priority for 2020.

Moses Lake
Last month, BMW said its joint venture with SGL Group will spend $200 million to triple the capacity of its carbon fiber products plant at Moses lake, Washington. The factory will become the world’s largest producer of carbon fibre, with an annual output of 9,000 tons by 2015. The joint venture, SGL Automotive Carbon Fibers, is 49 per cent owned by BMW. The partners have spent $100 million on the plant.

IHS Automotive’s Urquhart said the BMW i8 shows that with its sexy wrapping and state of the art materials and engineering it can deliver incredible CO2 figures.

“This is a spectacular looking design and communicates well visually that this is about changing the future paradigm of what a sports car is, but at the same time evoking traditional sports cars. It’s futuristic but recognizable as a sports car. It would seem you will be able to have your cake and eat it,” Urquhart said.

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