Author | Nie Yiyao

According to public data, among the 250,000 to 400,000 yuan high-end automotive market in China from January to May 2022, the Tesla Model Y (82,169 vehicles, an increase of 134.8% year-on-year) is the top-selling vehicle in this price range.

Following the Model Y are the second-place BMW 3 Series (62,357 vehicles, a decrease of 24.8% year-on-year), the third-place Audi A4 (52,304 vehicles, a decrease of 25.3% year-on-year), and the fourth-place Mercedes-Benz C-Class (49,704 vehicles, a decrease of 34.5% year-on-year).

In the price range of 400,000 to 500,000 yuan, only the tenth-ranked sales of the NIO ES6 maintained a positive growth. Others such as the BMW 5 Series, BMW X3, Mercedes-Benz GLC, Mercedes-Benz E-Class, Audi Q5, Audi A6, Lexus ES, Lexus RX, and Volvo XC60 are all experiencing different degrees of decline in sales.

The data undoubtedly sends a clear signal: electric cars are rapidly taking over the territory of gasoline cars in the two price ranges where the high-end car market has the largest share, and new forces are constantly grabbing market share from traditional luxury brands, including BBA. As the highly anticipated and publicized new energy product, the Ideal L9, joins the 400,000 to 500,000 yuan market segment, the competition for market share between new and old luxury cars is set to intensify.

At the same time, traditional luxury brand electric vehicles are not performing well in the corresponding price ranges. So the question is, how can BBA, as the top three traditional luxury brands, resist the growing threat from new forces? In the irreversibly growing trend of electrification, how can they smoothly transition to the new track and continue their success from the old era as much as possible?

This question is actually quite difficult to answer, as the future is uncertain. The three major luxury brands are each feeling their way across the river with their own stones, with no unified answer or methodology. The only thing that is the same is “both need to”: they need to capture every drop of the gasoline car bonus during the period when car consumption is upgraded and gasoline cars remain the mainstream, and also consider the popularity of electric cars in the future, and make suitable preparations for timely entry into the new track.

However, this “both need to” goal is very clear, but it is not easy to achieve. Currently, it seems that BBA is moving its old brands to electric car products, hoping that electric car products can inherit the luxury attributes and brand premiums of gasoline cars, but this approach has not been widely accepted by Chinese consumers.

Under the guidance of new forces, Chinese consumers are more willing to believe that the luxury of electric vehicles, a new category, should not be defined by the traditional leaders of the old order, but should have more possibilities and openness.

This may be a reality that traditional luxury brands like BBA did not expect but have to accept. However, asking BBA to abandon their existing brand premiums and the profits from fuel-powered cars to create a brand new electric vehicle brand goes against the goal of “wanting both” at least for now.

So, what should be done? BMW seems to have found its own way.

Accumulate grain and delay claiming the throne

On June 23, 2022, BMW held an online press conference to announce that the BMW iFACTORY production strategy had landed a model example in China- the Lida factory officially opened.

The Lida factory is a green eco-factory invested by BMW with a total investment of 15 billion yuan, following the Dadong and Tiexi factories in the Chinese market.

The so-called “BMW iFACTORY production strategy” is a concept proposed by the BMW Group at its financial report annual meeting in March this year, representing BMW’s production strategy vision: Lean, green, and digital.

The meaning of lean is efficiency, precision, high flexibility, and the ability to integrate different drive technologies and vehicle architectures into production. According to BMW, this is the key factor for its successful transformation.

Green refers to the use of the most advanced technology, the least resource consumption, and a circular economic model for production.

Digitization represents the use of data science and artificial intelligence in production, and the integration of the virtual and real worlds in planning and development.

This conference was obviously intended to let the outside world see BMW’s highly flexible, flexible, and sustainable production strength.

At the Lida factory, the production structure is very flexible. Not only can it achieve a maximum production capacity of 100% electric vehicles, but it can also achieve co-production of different drive modes and different vehicle models. This flexibility not only allows BMW’s new and derivative models to be integrated and delivered faster, but also allows customers to change certain configuration elements of their vehicles six days before production.

At the Lida factory, 100% of renewable electricity is used; the sponge city system collects rainwater, nourishing more than 11,000 different species of trees and bushes and 7500 square meters of gardens in the plant, and supplementing groundwater. This practice conforms to BMW’s goal of “reducing average per-car full life cycle carbon emissions by 40% from 2019 levels by 2030, with an 80% reduction in carbon emissions at the production level.”# BMW uses the “Industrial Metaverse” to integrate the virtual and real worlds in the planning, design, and simulation of the Rieda factory. Chinese and German employees can collaborate in the “Metaverse,” achieving cross-regional and cross-time zone cooperation, saving time and costs. BMW’s Greater China CEO and President, Gao Le, emphasized BMW’s electric mobility strategy and the significant role of the Rieda factory in accelerating BMW’s brand in China’s market towards electric transformation at the press conference.

Given BMW’s strong brand and technical capabilities as a benchmark enterprise in global automotive manufacturing technology, its advanced and excellent production factory and digital service companies, and its research and development network, not to forget the battery assembly line in Shenyang, one would expect BMW to be advancing rapidly on the path of electrification as new entrants are doing. But why is BMW still moving forward in a step-by-step, patient manner, stocking up agriculture before gaining hegemony?

This leads to another story.

It is also a move made reluctantly.

BMW started its electric vehicle research and development journey as early as the 1970s.

In 2013, BMW launched its first pure electric vehicle model, the BMW i3, and plug-in hybrid vehicle model, the BMW i8. Both models were not only ahead of most new entrants at the time, but their battery energy density also exceeded that of the Tesla Model S. Moreover, the cabin was made of carbon fiber and supported with 3G connectivity.

The BMW i3 was hailed as the benchmark for traditional automakers’ electrification transformation that year, achieving top-three global new energy vehicle sales rankings from 2014 to 2016.

However, BMW’s former CEO, Krueger, under the pressure of uncertain electric vehicle prospects and the need to be profitable, did not continue to aggressively develop electric vehicles. Instead, he advocated for flexible production models.

Krueger believed that we should not put all our eggs in the pure electric vehicle basket but rather deploy various drive modes such as the internal combustion engine, hybrid, and pure electric.

As Krueger stepped down, Zipse inherited the flexible production model and the “want-it-all” approach.

This is apparent from Gao Le’s words and BMW’s electrification strategy.# Will You Pay for BMW’s Electric Vehicles?

According to BMW’s electrification strategy, by 2025, new energy vehicles are expected to account for 25-28% of the Chinese market, which means that 75% of the market is still occupied by conventional vehicles. Even by 2030, the proportion of new energy vehicles may only reach 50%-60%, leaving 40% of the market still being conventional vehicles. Therefore, BMW will simultaneously focus on both conventional and new energy vehicles.

BMW’s electrification strategy can be viewed as a phased and gradual approach in the short, medium, and long term. In the short term (2022-2025), BMW has introduced the concept of “Power of Choice”, which provides consumers with the option to choose among internal combustion, plug-in hybrid, or pure electric models.

In the medium term (2025-2030), BMW plans to launch the “New Generation” models with a pure electric architecture, gradually increasing the proportion of pure electric vehicles to 50%.

In the long term (after 2030), some of BMW’s brands will be completely electrified, supplemented by hydrogen fuel cells for zero-emission, but a certain proportion of internal combustion engine vehicles will still be available.

This decision means that BMW cannot be as reckless as new players in the electric vehicle field. BMW needs to take a higher perspective, balancing the development from conventional to new energy vehicles and ultimately achieving a successful transition to intelligent connected vehicles, balancing the sustainable development of the company, the Chinese market, and the global market, among other practical issues.

As Gao Le put it: “To succeed in this field of intelligent connected vehicles, we need multiple capabilities. This is a marathon. Even if you are a leader within the first five kilometers, it does not necessarily mean you will win the final victory.”

Will You Pay for BMW’s Electric Vehicles?

Based on BMW’s electrification strategy, 2025 will be the time for BMW’s breakout with its all-new pure electric architecture, the “New Generation” models. The all-new architecture will begin trial production in 2024 and be launched in 2025.

From that time, the real competition between BMW and the new players trying to take away its market share will begin.

At that time, will consumers pay for BMW, a luxury electric vehicle brand that has grown under a sustainable economic model? What will be the competition between the new players represented by Tesla and the luxury-brand electric vehicles represented by BBA?

This is an interesting question.

In recent years, new players have been continuously enriching the electric vehicle category, attracting a large number of domestic consumers who are eager for innovation and new products. In contrast, traditional automakers have been left behind in the new energy race due to a lack of innovation and new electric vehicle products.However, new forces also have weaknesses, such as young brand and weak accumulation, as well as the problem of profitability, which hinders the development of new forces. It remains to be seen whether the market and consumers will continue to favor new forces and invest in them to help their development.

The weaknesses of new forces are the points that traditional luxury brands such as BMW can target.

However, with the competition in the electric race track becoming more intense and changing rapidly, whether BBA can enter the market with a brand-new electric image that surprises consumers may be the key to winning.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.