StockBeat: BMW and Co. Rev up in Pursuit of Tesla

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By Geoffrey Smith — Like many automakers, Bayerische Motorenwerke, or BMW, has had a rocky year. Sales figures out on Wednesday suggest however that not only is the worst past, but that it’s making vital progress in meeting the biggest challenge facing it.

BMW Group’s third-quarter sales report showed that it sold 47% more electric vehicles in the three months through September than it did a year earlier.  Momentum increased sharply in the summer, as the group sold 54,719 electrified BMWs and Minis, almost as much as it had done in the first two quarters combined. While the first-half numbers are obviously distorted by Covid-related shutdowns, the accelerating trend is still clear.

That number still leaves it producing less than half of what Tesla (NASDAQ:) produces in pure electric vehicles: Elon Musk’s company rattled off 139,000 units in the last quarter and its first-mover advantage in the fastest-growing segments of the automotive market seems secure for the foreseeable future.

All the same, BMW’s growth profile in EVs underlines a fact often overlooked by the stock market –  that Tesla doesn’t have the EV space to itself: all the big three German groups have accelerated their schedules for ramping up output of EVs in the last 12 months, and market pressure is likely to force them to be even more ambitious going forward. Only yesterday, Daimler (OTC:) put out new targets for EVs as a share of total output, and now expects them to be more than half of total sales by 2030.

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While this is largely making a virtue out of necessity – new EU regulations mean that there are heavy fines for carmakers who fail to meet groupwide standards on emissions – there is little reason to think that a country with Germany’s academic and industrial capital will not be able to compete with Tesla in the long term.

But even in the short term, Tesla does not have the monopoly that its stock market valuation implies. Norway, for example, is Europe’s most mature EV market, and there, the Model 3 is outsold by Volkswagen’s new ID.3.  

Europe’s best-selling electric car is, in fact, the Renault (PA:) Zoe, a fine example of what happens when generous cash-for-clunkers schemes are tailored to local manufacturers with strong local brands. Even in Germany, where disposable incomes are high and Musk’s reputation still higher, the Zoe outsold the Model 3 by some 60% in the first two months of the third quarter.

Tesla’s sales in Europe will naturally look very different when its new factory outside Berlin comes online, something that should happen in the second half of next year.  Tesla aims to produce 500,000 cars a year there ultimately, although it will have to sort out issue with water supply first.

But European – and Japanese and Korean – automakers are hardly rolling over for it. The more progress they make, the less they will pay Tesla for the credits that allow them to escape EU and U.S. emissions fines. At which point, investors will be able to get a truer picture of the underlying profitability of Tesla and its rivals.

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