Why BMW Won't Challenge Tesla Motors Until 2021

By Markets Fool.com

BMW CEO Harald Krueger poses with a futuristic show car. Krueger said that BMW will have an advanced electric luxury sedan to rival Tesla, but not until 2021. Image source: BMW

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BMW will launch an advanced electric luxury sedan in 2021, CEO Harald Krueger said during a presentation on Thursday.

The new electric car, which Krueger referred to as the "iNext," will replace the big 7-Series at the top of BMW's sedan lineup. But it's several years behind similar efforts from BMW's two German rivals, who are both moving more aggressively to respond to pressure from Tesla Motors .

What is BMW thinking here?

What BMW said about the iNext

As of right now, we know very little about this future electric BMW. Krueger described the iNext as, "our new innovation driver, with autonomous driving, digital connectivity, intelligent lightweight design, a totally new interior and ultimately bringing the next generation of electro-mobility to the road."

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The problem: Rivals will beat BMW to the punch

On the one hand, the iNext sounds like an ambitious project. It's sure to make heavy use of carbon fiber in its construction, and will likely showcase an advanced self-driving system. BMW has said that it will invest heavily in research and development over the next few years as it works to bring self-driving technology and more advanced electric propulsion to market.

But on the other hand, Audi expects to launch a fully electric luxury SUV with range and amenities comparable to Tesla's Model X early in 2018. It will be the first of several: Audi CEO Rupert Stadler said on Thursday that Audi will launch one new electric vehicle every year after the SUV debuts. Audi's Volkswagen Group sibling, Porsche, has said that will have an all-electric sports car on the market before the end of the decade.

Audi and Porsche will have some domestic competition. Daimler's Mercedes-Benz unit is preparing a range of electric luxury vehicles, starting with a Model-3-sized electric sedan and crossover -- also in 2018. Those will be followed by larger, more luxurious, and more expensive siblings before the end of the decade -- including what will be Mercedes' largest SUV. All are expected to have at least 310 miles of range under the European testing standard.

This show car may be a preview of an electric Mercedes-Benz sedan slated to debut in 2018. Imagesource: Mercedes-Benz

Audi and Mercedes have both caught on to Tesla's game plan. The Silicon Valley upstart has taken aim squarely at their market segments. Its Model S handily out-sold its direct German rivals in the important U.S. market last year. Now, with over 400,000 deposits for its compact Model 3 already in hand, Tesla looks set to steal a whole lot more business from the German luxury stalwarts starting in 2018 or thereabouts.

Long story short, while Audi and Mercedes are moving aggressively to defend their turf, BMW is talking about a car that's still five years away.

Why BMW may not be able to move more quickly

While Audi can draw on the resources of the vast VW empire, and Mercedes-Benz can share some research and development costs with Daimler's heavy-truck businesses, BMW is on its own. It's possible that it simply may not have the resources to deliver an advanced electric sedan that meets its own high standards before 2021.

Consider this: In his presentation on Thursday, BMW's Krueger also said that the company would expand its range of "M" high-performance vehicles, as well as its range of (gasoline-powered) offerings in the higher-end segments of the luxury market.

The "M" vehicles aren't just fast, they're extremely profitable, commanding prices well above the mainstream models they're based on. The takeaway: BMW may need to raise some money to fund the R&D it will have to do to create the iNext, and it will do so by increasing its mix of high-profit gasoline models.

There's also another factor: While BMW looked well-positioned in the electric-car race a couple of years ago with its i3 and i8 models, the senior executives who led the "i" development recently left the company, possibly out of frustration with BMW's unwillingness to commit to an aggressive schedule. But now, it's possible that the loss of talent will slow BMW's efforts further.

The upshot: BMW is taking a risk here

As with its German luxury rivals, BMW's brand image depends in part on being seen as technically advanced, more so than mainstream carmakers. That image has taken a heavy beating from Tesla's very visible success: Suddenly, the Germans are no longer on the luxury-car cutting edge.

To survive and thrive, all three companies need to show that they can keep pace with (or better yet, outpace) the high-tech upstarts from Silicon Valley. Audi and Mercedes appear to be on track to at least get into the running with Tesla over the next couple of years.

By waiting until it has a (hopefully) great car to introduce in 2021, rather than moving aggressively to launch a good one sooner, BMW is at the risk of being overshadowed by Tesla and its German rivals. Will that be a problem for BMW? We'll find out.

The article Why BMW Won't Challenge Tesla Motors Until 2021 originally appeared on Fool.com.

John Rosevear has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tesla Motors. The Motley Fool recommends BMW. 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.