BMW’s elec­tric plans for world dom­i­na­tion

BMW thinks that there is a mar­ket for hy­brid and elec­tric cars in the Mid­dle East, no mat­ter the cost of fuel or the love for SUVs.

Gulf Business - - FRONT PAGE - TEXT BY ANKUSH CHIB­BER

On a long stretch of open road some­where off Mu­nich in Ger­many, I fi­nally let go of the ap­pre­hen­sion. Brought up to drive on the com­mon­wealth side (read left) of the road, I was fairly hes­i­tant to let loose a hy­brid Ger­man su­per­car on one of those no-speed-limit au­to­bahns.

When I fi­nally did stop hes­i­tat­ing and pressed on the pedal af­ter eye­ing a lack of traf­fic ahead, the car, the BMW i8, roared with a growl into what felt like be­ing in a space ship go­ing into warp drive.

Min­utes be­came sec­onds as the i8 bul­lied past cars on the bahn at speeds ex­ceed­ing 200 kmph with­out the slight­est of sway or lack of con­trol, guid­ing us home in its cos­mo­naut body with a heads up dis­play that made me feel like a char­ac­ter straight out of the sci-fi flick

Mi­nor­ity Re­port.

As I stepped out and ad­mired the in­ter­ga­lac­tic cruiser I had just driven, it dawned on me what BMW had done – it had made driv­ing elec­tric (or at least hy­brid) sexy and cool. In one swipe of Ger­man engi­neer­ing and de­sign, BMW had made ev­ery soc­cer mom taunt about cars like the Toy­ota Prius im­plode into dust.

In that, BMW also told us what our driv­ing fu­ture could look like.

NOT A CON­CEPT

Ad­mit­tedly, BMW is not the first to the gates on this ride. Tesla, the Cal­i­for­nian dis­rup­tor led by Elon Musk, crashed that party a long time ago. But BMW is cer­tainly one of the first ma­jor legacy car­mak­ers to go big on elec­tric and hy­brid.

First dis­played as a con­cept in 2009, the BMW i8 was never meant to re­main a con­cept, in­di­cates Dr. Ian Robert­son, board mem­ber for sales and mar­ket­ing at the BMW Group.

Speaking to Gulf Busi­ness on the side­lines of BMW’s An­nual Con­fer­ence, Robert­son says that the re­sponse to the i8, and its smaller cousin, the BMW i3 has been bet­ter than ex­pected.

While the BMW i8 is a plug-in hy­brid sports car, with a 7.1 kWh lithium ion bat­tery and a 1.5 litre com­bus­tion en­gine, the i3 is five-door ur­ban elec­tric car with an av­er­age driv­ing range of up to 160 km.

“These cars are not just about test­ing the tech­nol­ogy for the fu­ture. BMW is se­ri­ous about their sales. We are al­ready num­ber three in the world in the seg­ment that the i3 is in.

“For the i8, the sales fig­ures are up there with other high per­for­mance sports cars and al­ready sell­ing more than them,” he says, adding that both cars are also an op­por­tu­nity for BMW to bring a new type of cus­tomer to the brand.

Still, the way the mar­ket re­sponds to the BMWi series of cars will have a mea­sur­able im­pact on the fu­ture range we may see at the Bavar­ian car­maker.

Klaus Fröh­lich, board mem­ber for de­vel­op­ment at the BMW Group, re­vealed at the con­fer­ence that tech­nol­ogy from the two will cross­over to main­stream prod­ucts start­ing with the X Drive range of cars, which will be of­fered in a plugin hy­brid op­tion be­gin­ning Au­tumn 2015.

Ac­cord­ing to Robert­son, car­bon fi­bre tech­nol­ogy from the BMWi series has crossed over and it is in­evitable that its bat­tery tech­nol­ogy will even­tu­ally find its way to the main­stream cars.

“Bat­tery tech is key to elec­tronic mo­bil­ity,” says Fröh­lich.

“The av­er­age den­sity of lithium ion cells has in­creased and will dou­ble again for au­to­motive ap­pli­ca­tions over the next five years. At the same time, cost per kWh will drop, which will con­vert to an ex­tended range and re­duced costs. Elec­tric mo­bil­ity would even­tu­ally be a part of, and more use­ful for, daily life.”

NOT SO FAST

How­ever, even Robert­son ac­knowl­edges that there are con­sid­er­able chal­lenges to over­come be­fore a car like the i3 or any of its suc­ces­sors could be the go-to-car for the ur­ban, daily com­muter.

For one, the pol­icy frame­work in many coun­tries still makes it un­fea­si­ble for con­sumers to go elec­tric. Case in point, Ger­many, the car­maker’s home mar­ket, which has yet to come up with a con­crete pol­icy on the is­sue. We are also in an era of cheap oil, which could at least in the­ory, de­lay con­sumers from go­ing elec­tric or hy­brid. Robert­son nods in agree­ment and ad­mits that there will be some short-term af­fect of low oil prices on the US mar­ket.

“Per­haps not in the Euro­pean mar­ket. In Europe, tax­a­tion still keeps the price of fuel high. But I think that one thing that is very clear – that the leg­is­la­tion in de­vel­op­ment and in place across ge­ogra­phies will con­tinue to drive miles per gal­lon up and Co2 emis­sions down.”

Over the next 10 years, the adop­tion of zero emis­sion elec­tric and hy­brid tech­nol­ogy is set to grow to meet some of the emis­sion tar­gets be­ing set, Robert­son ar­gues.

“I don’t see any change from the leg­isla­tive an­gle or the en­vi­ron­ment um­brella to change that,” he says. “Also, we need to look at ur­ban­i­sa­tion as a fac­tor.”

“The US has two megac­i­ties (Los An­ge­les and New York), Europe has one (Lon­don), South Amer­ica has three (Mex­ico City, Sao Paulo and Buenos Aries), and the rest are in Asia, of which there is only one old one (Tokyo),” he says.

“And if you look at the en­vi­ron­men­tal chal­lenges they have and will con­tinue to have, zero emis­sions will have to come.”

ARAB ELEC­TRIC

Talk­ing of mega cities, our con­ver­sa­tion veers to Dubai, Abu Dhabi and Mid­dle East, where I point out that coun­tries of­fer sub­stan­tial fuel sub­si­dies, work­ing against the idea of zero emis­sion adop­tion.

BMW cur­rently only has the i8 on sale in the GCC, of which it has sold more than 50 since its launch in 2014. The i3, the pure elec­tric of­fer­ing, has how­ever been not launched in the re­gion.

“When we first told our Mid­dle East deal­ers about the i8, they were not too ex­cited. How­ever, when they saw it and drove it, the ex­cite­ment lev­els def­i­nitely went up. We sold a lot of them in the re­gion last year,” he says.

One fac­tor hold­ing back the i3 is recharg­ing in­fra­struc­ture, which is not in place right now in the Mid­dle East, he says. “But we see some of the big­ger cities mov­ing in that di­rec­tion. As the in­fra­struc­ture de­vel­ops, I think we will see the mar­ket for the i3 here.”

Some of that in­fra­struc­ture is be­gin­ning to take shape in ar­guably the Mid­dle East’s only mega-city. In late Fe­bru­ary, Dubai Elec­tric­ity and Wa­ter Au­thor­ity (DEWA) an­nounced plans to open 100 elec­tric ve­hi­cle-charging

sta­tions in the emi­rate this year.

Ac­cord­ing to DEWA, the first phase of the recharg­ing pro­ject in­cludes in­stalling 16 charging sta­tions for pub­lic use, each of which can ac­com­mo­date two ve­hi­cles at the same time.

“Look, we have al­ready tested the i3 in the Mid­dle East ex­ten­sively…to check its per­for­mance in the weather con­di­tions… and also to bring it to the mar­ket and test the wa­ters. “The con­sumer will not shy away from these tech­nolo­gies, but govern­ments must be mo­ti­vated to bring this change.”

Robert­son points to Nor­way, of­ten called the ‘Mid­dle East of Europe’, given its oil-driven econ­omy, which has in­cen­tivised the adop­tion of zero emis­sion elec­tric and hy­brid cars with favourable tax­a­tion – there is no VAT on cars. “Now 13 per cent of the car mar­ket in Nor­way is elec­tric.” But what about the con­sumer’s mo­ti­va­tion? BMW’s own num­bers show that of all its sales in the Mid­dle East, the 5 and 7 Series, and the X5 and X6 ac­count for around 65 per cent. The X prod­uct range, which cov­ers the cross­over and SUV seg­ment, now ac­counts for around 50 per cent of over­all Mid­dle East sales – not ex­actly sign of a con­sumer that is wor­ried about the en­vi­ron­ment or fuel econ­omy.

Robert­son dis­agrees, sug­gest­ing that while the Mid­dle East favours 4x4s and SUVs, the pic­ture will change.

“What we see in the Mid­dle East is that peo­ple are mo­ti­vated about new prod­ucts. And if you look at the reg­u­la­tions go­ing for­ward, cus­tomers will even­tu­ally head in that di­rec­tion too. We have seen that time and again, and Nor­way is a good ex­am­ple of that.”

THE BIG­GER PIC­TURE

BMW group had what one could call a fan­tas­tic year in 2014.

Global car sales grew by 7.9 per cent to 2.11 mil­lion ve­hi­cles. Rev­enues also reached an all-time high ex­ceed­ing 80 bil­lion eu­ros and grow­ing 5.7 per cent an­nu­ally. In the Mid­dle East specif­i­cally, the group saw its sales grow by over 23 per cent, sell­ing more than 30,000 cars. Of these, Abu Dhabi and Dubai were its strong­est mar­kets, both grow­ing by 68 per cent and 15 per cent re­spec­tively. The group also saw par­tic­u­larly strong growth from smaller vol­ume mar­kets: Oman (38 per cent), Bahrain (37 per cent), and Jor­dan (15 per cent). In the first two months of 2015, sales grew by over 12 per cent in the least year, with 5,106 cars sold. How­ever, that mo­men­tum may be

dif­fi­cult to keep up given the sharp fall in crude oil prices, which has squeezed govern­ment fis­cal bud­gets and in turn im­pacted con­sumer spend­ing – given the quan­tum of pub­lic sec­tor em­ploy­ees in the re­gion.

Two other ex­am­ples stand out. In China, where the firm had an un­prece­dented run of post­ing an­nual sales growth of over 30 per cent, 2014 brought a lower fig­ure of 17 per cent. Go­ing for­ward, Robert­son does not ex­pect growth to be in dou­ble dig­its. In Jan­uary this year, the firm agreed to pay $820 mil­lion to auto deal­ers in China who had asked for com­pen­sa­tion af­ter buy­ing ve­hi­cles on ex­pec­ta­tions of rapid growth.

Ear­lier, in Rus­sia, BMW was one of the many car­mak­ers to sus­pend sales af­ter eco­nomic sanc­tions, post the Ukraine cri­sis, brought about a rapid fall in the value of the Ru­ble. Ac­cord­ing to the As­so­ci­a­tion of Euro­pean Busi­ness Au­to­mo­bile Man­u­fac­tur­ers Com­mit­tee, sales of new cars and light com­mer­cial ve­hi­cles in Rus­sia fell 38 per cent from a year ago to 128,298 units in Fe­bru­ary fol­low­ing a 24 per cent drop in Jan­uary.

Robert­son is un­per­turbed by this. “Volatil­ity is the new nor­mal. We are all used to that now. It has been dif­fi­cult to ac­knowl­edge sta­bil­ity af­ter 2008 to 09. If we look at the oil price fall or the fall in the Euro, no one could have pre­dicted that.” “At the same time, as a com­pany, we have a good bal­ance be­tween all our ge­ogra­phies. It is very un­likely that the en­tire world moves in one di­rec­tion,” he states, point­ing to how the re­cov­ery too has been var­ied – the US crossed pre­cri­sis lev­els last year, while Europe is still be­hind the curve.

“But we bal­ance our port­fo­lio to fight chal­lenges like cur­rency volatil­ity. So while we have very strong man­u­fac­tur­ing in Europe, we now have an in­creas­ing pres­ence in Asia with ca­pac­ity in China grow­ing from 300,000 to 400,000. Our new plant in the US will have a ca­pac­ity of 450,000, while we have smaller fac­to­ries for Rus­sia, Brazil In­dia, and Thai­land.”

WHAT NEXT?

I ask Robert­son of the fu­ture of BMW as a car­maker. Is it aware and alert to the threat from dis­rup­tors such as Tesla and now pos­si­bly, Ap­ple? Robert­son as­serts that at the end of the day, all car com­pa­nies are mov­ing for­ward.

“We have taken re­ally bold steps in the past. No one ten years ago would have thought that we would launch the 1 Series or the X mod­els. When we did launch the X series (SUVs), most peo­ple said that BMW does not make SUVs and they are not go­ing to work. Last year, we sold more than a half a mil­lion X cars.

Then there are the i3 and i8, and more tech­nolo­gies are in the works, like the hy­dro­gen fuel cell, which might be un­fea­si­ble for now, but can be part of the au­to­motive fu­ture, he adds.

On the threat of Tesla, Robert­son ad­mits that it has pushed car­mak­ers like BMW to change the way they mar­ket and sell their cars. “We are mov­ing for­ward with our own outreach pro­gram on the dig­i­tal space. But we have a more flex­i­ble ap­proach.”

He points out that Tesla sells digitally and has its own stores, which is not easy to do in mar­kets like the US and China. “We are a ma­ture com­pany with a ro­bust and entrepreneurial dealer net­work. At the end, we want to con­tinue hav­ing them as the back­bone of our re­la­tion­ship with cus­tomers,” he says.

“At the same time, the ex­pe­ri­ence in the deal­er­ship has to be friend­lier to our cus­tomer. The sales process has not changed in 100 years. And the feed­back is that it’s not very good.”

To im­prove on this, BMW re­cently in­tro­duced Prod­uct Ge­niuses – in­di­vid­u­als whose re­spon­si­bil­ity is to pro­vide the cus­tomer with ex­pe­ri­ence and in­for­ma­tion of the car and not to sell him one. To­day, there are 2,000 of these across the world.

“Our deal­ers did not like this in the be­gin­ning, but we told them it is the fu­ture. Two years ago, they put one Ge­nius in for four sales­men. Now, they have four Ge­niuses for one sales guy,” he says. So can a Ge­nius con­vince a young Mid­dle East con­sumer to drop his mus­cle car and put his money on an elec­tric or hy­brid BMW? Robert­son thinks it’s in­evitable that one day, he will not need con­vinving.

“You know that the cost of gen­er­a­tion for elec­tric en­gines and bat­ter­ies is com­ing down. At the same time, the cost for the com­bus­tion en­gine is in­creas­ing, es­pe­cially with the emis­sions over­lay,” he says.

“At some point, the in­ter­nal com­bus­tion en­gine and the elec­tric en­gine will cross over. There will be no stop­ping elec­tric cars then.”

Ac­cord­ing to BMW, elec­tric mo­bil­ity would even­tu­ally be a part of, and more use­ful for, daily life.

Dr. Ian Robert­son, board mem­ber for sales and mar­ket­ing, BMW Group.

One key fac­tor hold­ing back elec­tric cars in the Mid­dle East is a lack of charging in­fra­struc­ture.

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