Just a few days ago, Klaus Fröhlich, the head of research and development for BMW, was whining to the press that nobody wants to buy electric cars. Well, actually, as it turns out, nobody wants to buy BMWs if the latest financials for the company are any indication. According to the Toronto Star, BMW has seen its position as Germany’s luxury car leader evaporate over the past few years and is facing strong financial pressure associated with developing electric and self driving cars that can compete with the likes of Tesla and other manufacturers.
Now it reportedly will not renew the current contract for its CEO, Harald Krüger, when it expires next April. The company has just reported its weakest earnings in a decade, a reversal after sporting some of the highest profit margins in the automotive business for many years.
Krüger was chosen to lead the company in December, 2014 after his predecessor, Herbert Diess, left unexpectedly to take the reins at rival Volkswagen. In a statement to the press, he said, “After more than 10 years in the board of management, more than four of which as the CEO of the BMW Group, I would like to pursue new professional endeavors and leverage my diverse international experience for new projects and ventures.”
It is customary for German companies to renew the CEO’s contract one year before its termination. When BMW did not do so in April of this year, it started speculation that Krüger would step aside when his contract ended instead of signing on for another 5 year term.
BMW was once thought of as a leader in the nascent electric car field when it brought its highly innovative BMW i3 electric car to market in 2013. But, the company failed to capitalize on its early lead as it struggled to find a way forward for EVs.
Krüger was “too cautious,” Ferdinand Dudenhoeffer, director of the CAR Center for Automotive Research at the University of Duisburg-Essen tells The Star. “BMW was not able to use the head start for a new generation of electric vehicles.”
David Bailey, a professor at the Birmingham Business School, told CNN that BMW needed to accelerate its move into new technologies. “[Krüger has] done a very good job in recent years, but BMW faces some very big challenges going ahead. They felt the needed to bring in somebody new given the scale of the challenge.”
The Tesla Effect
It has not been lost on management or customers that the Tesla Model S is now the best selling large luxury car in Germany, which is hugely embarrassing to BMW as well as Mercedes-Benz and Audi. We may never know exactly how the changes in the marketplace brought about by Tesla have affected the fortunes of those companies but there is little question it has roiled the industry and forced companies to confront the coming electric vehicle revolution faster than they might done otherwise.
In addition to being hit with an antitrust penalty of $1.6 billion by EU authorities recently, BMW has has been adversely affected by a rise in tariffs on vehicles exported to China from its plant in South Carolina due to the tariff war going on between the US and China. In March, it downgraded its profit projections for 2019 and announced a cost saving plan that will trim $13.6 billion in costs by the end of 2022. That plan focuses on dropping some models and streamlining vehicle development.
BMW says it is rushing to bring electric cars to market, but in truth, when your head of R&D says nobody wants to buy electric cars it is hard to take such statements seriously. At CleanTechnica, we have said for a while that some traditional car companies may go out of business or be forced to merge with other companies as a result of the arrival of electric vehicles.
BMW and Mercedes have indicated they will collaborate on the development of electric and self driving cars, a sign that a consolidation in the industry may already be under way. Unless BMW can get back on track with its development of competitive electric, autonomous vehicles, it could even be the first traditional automaker to go bankwupt — but it probably won’t be the last.