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BMW Lets Slip That Its Electric Vehicles Can’t Compete With Tesla’s

Poor BMW. Director of development Klaus Fröhlich has had yet another EV meltdown, brought on by the pressure of not being able to compete with Tesla in the battery electric vehicle (BEV) market. His excuse for BMW’s failure to compete? “Nobody wants them.” Is Frölich really this out of touch? Or is he just playing politics?

Poor BMW. Director of development Klaus Fröhlich has had yet another EV meltdown, brought on by the pressure of not being able to compete with Tesla in the battery electric vehicle (BEV) market. His excuse for BMW’s failure to compete? “Nobody wants them.” Is Fröhlich really this out of touch? Or is he just playing politics?

Klaus FrölichPhoto of Klaus Fröhlich by Matti Blume (CC BY-SA 4.0 license)

Klaus Fröhlich put on an embarrassing public display of whining and moaning about BEVs at the NextGen conference in Munich this past week. Fröhlich has had faux meltdowns about BEVs before. Most notably, back in October 2018, Fröhlich made a laughable claim that BEVs will “never” be able to compete on price with fossil vehicles. His reasoning? That as EVs become more popular and demand for batteries increases, their price is likely to increase. He stated in October, “When everybody wants to have cobalt, the prices of cobalt will not go down, they will go up.” Poor BMW. Their head of development seems to be living under a rock. Likely a fossil.

Fröhlich has rehashed the exact same argument again this week, as reported by Automotive News and Forbes, claiming:

“The shift to electrification is overhyped. Battery-electric vehicles cost more in terms of raw materials for batteries. This will continue and could eventually worsen as demand for these raw materials increases.”

Even at a time of unambiguous climate crisis, Fröhlich’s plan is for BMW to keep making diesel engines for the next 20 years, and gasoline engines for the next 30 years. BMW also aims to stick with a PHEV-heavy strategy to meet emissions regulations, rather than prioritizing BEVs. (PHEV = plug-in hybrid electric vehicle.)

Fröhlich Fails Economics 101

Fröhlich’s claims about the price of battery materials are absolute nonsense, and he knows it. It should go without saying — especially for someone whose job should involve understanding the trajectories of auto technology — that cobalt is being steadily removed from battery cathodes, and makes up just 5% to 10% in the latest generation of chemistries (e.g. Tesla’s NCA and CATL’s NCM 811), down from 33% of the cathode in recent generations. With time, cobalt will be removed almost entirely. Furthermore, it’s Economics 101 that prices only increase with growing demand if supply is fundamentally constrained. (Related: Nope, Cobalt’s Not A Problem For The EV Revolution, Or Tesla — #CleanTechnica Exclusive.)

When an industry is experiencing growth (as the BEV industry has been for a decade already), especially growth driven by technological developments, there is de facto an overall increase in volume at all levels of the supply chain over time. This, combined with production learning, technological learning, and economies of scale, drives gradually lower prices. Whilst there may be bottlenecks (or oversupply) at some points along the supply chain for short periods, only a fundamental fixed limit at some point of the basic material supply (one that cannot be overcome) would lead to increased prices as demand grows. And even then — only if there were no possible substitutes.

To the chagrin of those used to being in oligopoly positions in the oil industry, none of these dynamics apply in any fundamental sense in the battery mineral supply chain. Decent returns on investment can certainly be made, but monopolistic pricing and cornering the market on vital commodities do not apply in the age of BEVs (except perhaps in regard to the talent pool).

Tesla Team TalentImage via Tesla

If you will allow me a side note — it’s worth remembering also that material content of battery cells for 450+ km of range (around 65 kWh) will soon amount to as little as 220–240 kg (@300 Wh/kg), and this amount of “stuff that needs mining” is steadily decreasing as energy density and vehicle efficiency improve. Once mined and refined once, and then in duty for 12–15+ years in a BEV, and another 10+ years as stationary storage, almost all of these materials can be recycled in perpetuity for repeated use in the future. The electrons that “fuel” the battery weigh almost nothing and can come along existing wires, from renewable sources.

Contrast that with the 200 to 300 gallons of gasoline that simply go up in smoke and other emissions each year, when driving 10,000 miles in a combustion vehicle. 200 to 300 gallons at around ~3 kg (6.3 lb) per gallon — that’s 600 to 900 kg of “stuff” that needs mining, shipping, refining, transporting, storing, and delivering each and every year. Over a 15 year lifetime, that’s around 45× more mined material than the BEV requires. Remind folks of that difference if they question the lifetime environmental impact of BEVs vs. fossil powered vehicles.

Getting back to Fröhlich’s FUD on battery mineral prices: There is no fundamental natural supply constraint to battery minerals (lithium is the 25th most abundant element on earth). There is simply an unprecedented growth in demand for some minerals (lithium and, until more recently, cobalt) that have historically had fairly modest supply volumes for other end uses. The supply industry for these minerals is following a normal pattern of the ramp up of mining (and processing) investments sometimes struggling to keep up with rapidly growing ramp in demand. Nevertheless, the price of the key minerals, lithium hydroxide and lithium carbonate, as well as cobalt sulphate, have actually reduced over the past two years, even as demand for them, and manufacturing of batteries, has rapidly increased:

More substantial mineral components of batteries are, in fact, nickel (5th most abundant element), aluminium (3rd most abundant), and graphite (essentially limitless, as it can be synthesized from carbon). The supply chains of all of these minerals are very well established, and the relative proportion of the global supply of these minerals that goes to batteries is still minor.

In short, although some supply chains (e.g., lithium) will need to continue to scale up, there are no fundamental mineral supply constraints that would lead to enduring price increases over time. Remember the concerns about limited silicon wafer supply for the PV industry back in the 2006–2008 timeframe? Well, let’s remind ourselves of the big picture on the price of PV watts over time:

The exact same trend is happening with battery pricing:

Fröhlich is either being ignorant, unintelligent, or dishonest (or all 3) when he claims the price of batteries, and battery electric vehicles, is at any significant risk of rising over time.

Fröhlich projects BMW’s BEV Failures onto Others

Every serious auto industry analyst knows that Tesla’s BEVs already equal or outcompete fossils on sticker price in the mid-sized premium segments (and every segment above), and BEVs in general will reach sticker price parity with fossils in pretty much all remaining segments before 2025. See, for example, our recent comparison on China pricing of premium mid-sized sedans, where the Tesla Model 3 crushes BMW 3 Series and Mercedes C-Class “rivals” on price. And, of course, savvy consumers are catching on to the already superior total cost of ownership of BEVs once wealth-draining gas fill-ups and high maintenance are removed from the ownership equation.

This reality on the already superior economic proposition of BEVs doesn’t stop Fröhlich from overstating their relative cost today:

“All this range discussion is complete bullshit because it’s an economic proposition of how much you can afford. … You have to pay for range, this is what people don’t seem to understand. The difference between 350km and 600km of BEV range will be 10,000 euros. You put them both out there and see how many people will buy the 600km car”

Fröhlich appears to be desperate. Of course, having extra range involves having a larger battery and thus somewhat higher cost, but Fröhlich grossly overstates the actual battery cost figures. Let’s take the current BEV best seller, the Tesla Model 3, as an example. This is a high-performance mid-sized vehicle, well matched in size to BMW’s own high selling 3 Series. The Tesla Model 3 Long Range rear-wheel drive has a European WLTP range rating of 600 km, from a gross battery size of ~80 kWh ( ~74 kWh usable). This suggests that a 350 km version would require a battery size of 47 kWh, at most. That’s a difference of 33 kWh in cells. This equates to the difference in battery size for the additional 250 km, that Fröhlich claims costs €10,000.

Image via Tesla

BWM is indeed in big trouble if it is paying €10,000 ( $11,380) for 33 kWh of cells. That’s $345/kWh at the cell level! According to BNEF, as of late 2018, the average market price of bulk contract automotive cells was $127/kWh. That would put the 350km to 600km battery premium at around just $4,191, or €3,680. Tesla’s cell cost is somewhere in the region of $100/kWh, putting the premium at just $3,300, or €2,900.

Is BMW really paying 3× too much for its cells? No. Fröhlich is instead grossly exaggerating the pricing (either deliberately or from ignorance) as part of his off-the-cuff negative spin about the inherent costliness of long-range BEVs. Why is Fröhlich talking such nonsense?

Perhaps what he really means to say is that BMW itself is simply incapable (or unwilling) to make decent-range BEVs that are attractive to consumers. This seems to be the case:

“There are no customer requests for BEVs. None. … There are regulator requests for BEVs, but no customer requests. … If we have a big offer, a big incentive, we could flood Europe and sell a million (BEV) cars, but Europeans won’t buy these things.”

Oh dear, oh dear, what nonsense. Fröhlich is taking BMW’s failure in the BEV market and trying to turn it around into a generalized talking-down of the entire market. “Nobody in Europe wants BMW’s BEVs … therefore nobody in Europe wants BEVs.” Fröhlich is essentially projecting BMW’s own failures onto every other player in the market, and all European consumers.

Arguably, Fröhlich is half right. Comparatively few people want BMW’s only BEV, the i3. That’s because it is relatively overpriced (perhaps because BMW really is paying $345/kWh for cells) and has comparatively low range, so is just not in great demand. Some folks buy them and no doubt love them, and that’s great, but it’s not a mass-market car like the Tesla Model 3.

Image via BMW

BMW Aimed to Fail on BEVs?

But just because BMW can’t sell a decent volume of BEV vehicles, that doesn’t mean that the demand for compelling BEVs is not there, or that other automakers cannot sell plenty of BEVs. In Europe’s top 3 countries by EV market share — Norway, Sweden, and the Netherlands — the initial 5 months of 2019 have seen sales of 4,097 BMW i3 and 12,778 Tesla Model 3, a 3:1 ratio in favor of the Tesla, despite a higher price. The Model 3 actually only started selling in February, so the differential is greater still. The June figures, and the year total figures, will likely put the overall ratio at greater than 4:1. The only country where the BMW i3 gets close to the Tesla is, unsurprisingly, Germany, but it is still behind the Tesla on volume.

All this is with Tesla having one hand tied behind its back in Europe, due to not having production facilities on the continent. After the mandatory import taxes and shipping costs, the Tesla has around 15% added to its cost, when compared with the situation for locally made rivals such as BMWs. The sales volume could be twice as high without that 15% markup. This is precisely the situation that BMW could have been in by now if it had actually had the will to put some of its considerable engineering resources into making compelling BEVs.

How significant are these BEV volumes? From 2016 to 2018, BMW sold an average of  around 127,000 3 Series cars per year in Europe. Even with a ramping entry to the region (for example, with UK deliveries just coming online this past week), Tesla will likely sell at least 70,000 to 80,000 Model 3s in Europe this year. Without the added costs of import, a locally made equivalent would almost certainly achieve annual European volumes above 100,000 and somewhere close to the BMW 3 Series output.

Image via Tesla

The Takeaway

Fröhlich’s cries and wails about BEVs are really just weak excuses and playing politics. BMW operates under the same laws of physics (and engineering) as Tesla does, and if Tesla can make a compelling BEV, then BMW could also have done so, if the will had been there. But making the necessary investments, and sacrificing a bit of short-term profit for long-term returns, is apparently outside of the comfort zone of the Munich automaker. Fröhlich even essentially admitted that short-term profits are what drives BMW’s decision making, and its plan to comply with European emissions regulations via PHEVs rather than via BEVs:

“[PHEVs] are less expensive than BEVs. They are thousands more expensive than internal-combustion cars but we can’t charge that to customers and those regulations are reducing our profit pool. … But if we charged the customers for that cost, we would have downsizing with customers going from a 3 Series to a 1 Series customer.”

This is all just smoke and mirrors, since the regulations create a level playing field for all automakers in Europe, and we’ve already seen that Fröhlich has grossly exaggerated the costs of cells. It’s also a decision that will further delay BMW’s transition into the full BEV future, since, with the complexity of dual powertrains, PHEVs will soon be undercut by BEVs on cost. GM has already ditched its PHEV program for this reason.

The truth of the matter is that BMW cannot see beyond its legacy investments in combustion powertrains, even in full knowledge of their pollution, health, and climate impacts. Selling PHEVs allows BMW to cling to some of those investments for a while longer. More than simply struggling with investments, however, there’s a deeply entrenched cultural-weddedness to combustion engines inside BMW, and executives seem to be resistant to making the leap to something new (and better). In short, the culture at BMW is one that fears change.

Faded BMWPhoto by Emiel Molenaar on Unsplash (public domain)

When Fröhlich says Europeans won’t buy BEVs, he is really just attempting to cover BMW’s shame. Yes, Europeans are not buying many BMW i3s, because the i3, although a great car for some folks, does not represent anywhere close to what BWM could actually have achieved had it wanted to produce a truly compelling BEV. The Tesla Model 3 represents a relative newcomer’s efforts at making a truly compelling BEV, and Europeans are already buying plenty of them, even after the unavoidable import price markups. If BMW had actually tried to compete, and produced something even close to the Tesla Model 3, it would certainly have had a hit on its hands of comparable volume to the company’s best selling 3 Series.

BMW has just been too lazy and arrogant to innovate, preferring short-term easy profits and resting on the laurels of its combustion engine investments, at the expense of perpetuating pollution, damaging people’s health, and the destabilizing the climate. In my view, with high-level board members like Fröhlich still playing politics and delaying any sincere effort to make BEVs, they simply don’t deserve to survive the transition.

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