BMW perseveres with i3 in tough environment for EVs

Since its launch two years ago, BMW's odd-looking i3 has become the No. 3-selling electric vehicle in the U.S. But BMW executives and analysts say the car could be a tough sell in coming months.

Low gasoline prices, which hurt EV sales in general, are a major reason. But the i3, as the initial vehicle in BMW's grand plan to become the most sustainable luxury brand in the world, is showing that pioneering in the green space can be tough.

With the i3, BMW pumped billions into development of a car that not only is emissions-free but assembled using wind power, constructed of carbon fiber that is produced in a plant using hydropower, and has an interior made with recycled materials. The i3 is the smallest of BMW's family of sustainable cars, with the $140,000-plus i8 plug-in hybrid sports car at the other end. An autonomous car, iNext, is to launch "early in the next decade," BMW CEO Harald Krueger said last week.

The i series came out of BMW's Mega-city project in the last decade when gasoline prices were high. Today, unusually low gasoline prices have made EVs and compacts less desirable -- and BMW may have already met much of the pent-up demand from early adopters.

BMW offered 24- and 36-month leases on the i3 when U.S. sales began. The company now offers lease deals of $289 a month for 36 months on the base i3. Last month, BMW sold just 248 i3s in the U.S. In 2015, it sold about 900 a month and 11,024 in the full year.

Jose Guerrero, product planning and strategy manager for the i series at BMW of North America, said BMW met its U.S. target of 11,000 i3s last year -- with higher gasoline prices than today's levels -- but it wasn't easy.

"2016 it will be even harder," Guerrero said. "No one is sitting still from a technology standpoint. Look around at other manufacturers."

Part of the problem is the loss of state incentives as EVs lose their buzz factor.

"We knew states like Georgia were taking out incentives. We knew it was going to be a tough year," Guerrero said.

Aside from affordable leases, BMW plans to increase the i3's appeal with an improved battery for the 2017 model that will extend the car's range to 120-plus miles from the current base model's 81 miles. In contrast, the Chevrolet Bolt EV is expected to have a 200-mile range when it goes on sale late this year.

One i3 fan says that BMW's $289 leases may have to get better to move 2015 and 2016 models on dealer lots before the 2017 cars go on sale in July.

"A lot of these two-year leases are coming due, and people will wait for the new car or for when BMW puts on crazy incentives to get rid of the 2016s," said Tom Moloughney, one of the early i3 buyers. He is part of a group BMW calls the "electronauts" because they leased BMW's two test EVs -- the Mini E beginning in mid-2009 and the BMW ActiveE, based on the 1 series sedan, starting in 2012.

The i3 sold faster than the overall EV segment in the United States last year. Whether this tiny segment will grow is questionable, said Tom Libby an analyst with IHS Automotive.

"There are the unknowns -- fuel prices, no one knows where fuel prices are going. It's a challenge," Libby said.

Automakers need to offer EVs to help meet fuel economy regulations, he adds. Libby says that the i3's "unique design makes a statement. There is a customer segment that is not only drawn to BMW, but has the financial wherewithal, the interest of being environmentally aware, sensitive and being on the leading edge."

Although 291 of BMW's 340 U.S. dealers signed up to sell the i3, California accounts for 40 percent of i3 U.S. sales, with demand also strong in some Texas and Florida markets. BMW and experts blame the slow sales elsewhere on the lack of public charging stations.

BMW has also learned that selling new technology isn't easy.

"It takes a lot of effort to sell these cars because the clients that come in are tech-knowledgeable," said Manny Antunes a former salesman at BMW of Springfield, N.J., who has sold 85 i3s. "Salespeople are very lazy, and if they have to put in a lot of effort, they are not interested."

BMW executives argue that the i3 can't be judged solely on sales. The car's technology is spreading through BMW's lineup, they say. The i8 was developed simultaneously with the i3 and went on sale about three months later in the U.S.

BMW is using the carbon fiber it developed for the i subbrand in other nameplates, starting with its flagship 7 series, said Klaus Froehlich, BMW AG board member for r&d. The battery technology is gaining use in every major model range in which BMW plans a plug-in hybrid variant -- an X5 plug-in hybrid is on sale and the 3-series version goes on sale this year, Froehlich said.

The iNext, Krueger said last week in announcing BMW's strategy for the next decade, "will cover all aspects relevant in the future: autonomous driving, digital connectivity, intelligent lightweight construction, a trendsetting interior and the next generation of electromobility."

Some dealers say that the i3's tech-styling is too polarizing for some would-be buyers. U.S dealers said they welcome a larger i car and argue it needs to be roomier and more conventional looking than the i3.

"I would like to see a more mainstream car," said Damon Shelly, owner of two BMW stores in California. "Krueger knows the U.S. market and what we need."

Still, for BMW, a brand that has been defined by innovation and technology, an EV is a must, one analyst says.

"The i3 keeps BMW on the radar when it comes to brands that are offering unconventional drivetrains with an environmental focus," said Karl Brauer, senior analyst with Kelley Blue Book. "To be seen as a full-fledged premium brand, you have to do that."

The tall, five-door, rear-wheel-drive compact i3 has the footprint of the 1 series, the smallest BMW sold, and the interior room of the 3-series compact car. The i3 has a base price of $43,995, including shipping, a price tag that experts say makes it pricey as a second or a third car. An i3 REx variant, which has a gasoline range extender estimated to deliver 150 miles, is also available starting at $47,245.

BMW's Guerrero says a "big training push in 2015," not just for dealers but two or three salespeople from each store, helped BMW top 11,000 U.S. i3 sales last year.

"It is a different customer. We knew if we trained our sales advisers and if we put charging stations into dealerships that the sales will come. We did that and three-day test extended drives -- the culmination of these great ideas that resulted in 11,000," he said.

Dealers must consistently train their employees and persuade them to own the vehicles under the employee lease program "so they can live with the car and understand it -- that alone changes the culture of the dealership," Guerrero said. "It is about living with the car."

Rich Steinberg, BMW's head of product planning and strategy, said the lease deals are a reaction to the competitiveness of the segment. But he adds: "We are nowhere near as affordable as the others ... we will command the premium expected from BMW."

Fuel economy is a key selling point, says Mike Jackson, CEO of AutoNation, the country's largest new-vehicle retailer and the owner of 13 BMW stores. "Electrified people want to know how much money I am saving and the equation."

Plus, i3 buyers, like most EV shoppers, are leery of the battery technology, which is why they usually lease rather than buy an i3, said Jackson. "They do not trust the resale value and battery degradation. That is their fear."

Even with some of the car's shortcomings, i3 advocates -- who admit it's a love-hate relationship -- continue to be strong supporters.

"The biggest shortcoming will be addressed with the range," said Moloughney. "The vehicle is a technical marvel.

But, he adds, "There is nothing like it on the road technologically with the carbon fiber body and aluminum chassis. I feel like I am driving the future."