BMW Makes a Big Move Into Plug-in Hybrids

BMW Makes a Big Move Into Plug-in Hybrids | NASDAQ

BMW showed off a prototype of a new plug-in hybrid drivetrain for its 3 Series sedans on Monday. The "eDrive" hybrid system will eventually make its way to all of BMW's core models, the company said. Source: BMW.

German luxury giant BMW announced on Monday that it would follow up its innovative hybrid "i" models, the i3 sedan and i8 sports car , with a slew of new mainstream plug-in hybrids -- starting with a plug-in version of its vaunted 3 Series sedan.

BMW said that it will leverage the technology it developed for the i3 and i8 to bring plug-in hybrid versions of "all of its core-brand models" to market over the next several years.

The new models will be gasoline-electric hybrids, not pure battery-electric vehicles. BMW is still not quite mounting a head-to-head challenge to Tesla Motors ' acclaimed battery-electric Model S with these new products.

But the "green" expectations for luxury cars are rising, and Tesla's success may be one factor driving BMW's move.

A necessary move to meet tightening global regulations

The biggest factor behind BMW's decision to move aggressively into hybrids was surely government pressure. BMW -- like all other automakers -- needs to reduce carbon emissions and increase fuel economy across its entire product line in order to meet aggressive new regulatory requirements around the world.

Those requirements range from the U.S. Corporate Average Fuel Economy rules, which are set to tighten significantly over the next several years, to rules that give low-emission vehicles special privileges in cities like London and Beijing.

More rules restricting conventional gas- and diesel-powered vehicles from crowded city centers -- along with more incentives for buyers of electric cars or advanced hybrids -- are expected to come into play over the next few years, particularly in China, where air pollution has become a major problem.

Affluent customers who commute into cities like London are an important part of BMW's business, of course, and BMW's big move into plug-in hybrids is surely being made with those customers in mind.

But I wonder if another set of BMW customers, or maybe I should say former BMW customers, was a factor in BMW's aggressive move into hybrid propulsion.

Keeping BMW customers from buying Teslas instead

The success of Tesla and its Model S has certainly drawn the attention of the global automakers -- but some, out of necessity, are paying closer attention than others.

Mass-market automakers like Ford and Toyota can afford to simply acknowledge Tesla's success and say that they're watching the Silicon Valley automaker with interest, while they move toward "greening" their mainstream products.

But Tesla's Model S is priced -- and equipped -- like a luxury car, and the company has made it clear that its upcoming products will also be aimed at "premium" market segments. That's BMW's home territory, and there's some reason to think that BMW has lost customers to the Silicon Valley automaker.

BMW already has two innovative "green" cars, the electric i3 sedan and the hybrid i8 sports car, and sales of both have been promising so far -- at least compared to initial expectations, which were modest. But those are niche products, with limited appeal. The new plug-in hybrid versions of BMW's mainstay sedans and SUVs will help BMW's dealers give their green-minded customers more reasons to stay with the German brand.

A modular hybrid system that will be adapted to most BMW models

BMW didn't give a lot of specifics on Monday, but it did share a few details. Among them: The plug-in hybrid "eDrive" X5 crossover that BMW showed off in concept form earlier this year appears to be headed for production.

BMW showed off its X5 eDrive Concept, a plug-in hybrid version of its popular X5 crossover, in New York earlier this year. BMW hinted on Monday that the plug-in X5 may go into production soon. Source: BMW.

All of these new hybrid BMWs will be powered by a flexible plug-in hybrid powertrain, called "eDrive," that uses the battery-management technology from the i3 and i8 along with a four-cylinder gasoline engine. That powertrain appeared in a 3 Series hybrid prototype that BMW showed off in France on Monday.

BMW emphasized that it has designed this system to be adaptable to many different models -- and to be mass-produced on the same production lines. For instance, high-voltage battery modules for the X5 eDrive will be built on the same production line as those BMW now makes for the i8.

BMW emphasized that its new hybrids would deliver BMW-like performance and capabilities -- and that those capabilities would increase, with much more powerful electric motors and batteries, over time.

The upshot: A smart, but necessary, move for BMW

BMW is a very profitable automaker , but unlike some key rivals -- Volkswagen 's Audi in particular -- it isn't part of a global mass-market giant. That means it doesn't have the economies of scale that a brand like Audi or General Motors ' Cadillac can use to support massive investments in advanced technology.

But BMW needs to stay competitive with those giants, which is why it has committed to a major investment in research and development over the next several years. Its modular "eDrive" system appears to be one significant fruit of that investment plan. What else will follow? Stay tuned.

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John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends BMW, Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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