BMW (BMW.Germany), the German luxury car giant with sales nearly five times as large as Tesla Inc. (TSLA), is mounting an aggressive push into the electric vehicle space. It's sharply boosting spending to pass Tesla as a leader in the burgeoning market, as outlined by a recent story in Barron’s. This comes as Tesla's financial and operational problems are mounting, prompting one analyst to warn recently that Tesla will never reach profitability.

BMW's approximately $41 billion market value now eclipses Tesla's $33 billion, the latter which has fallen significantly off its highs. Shares of the Silicon Valley transportation company are down nearly 44% year-to-date, missing the broader market rally in 2019.

BMWs Race to EV Dominance

  • BMW plans to roll out 25 new electric-vehicle models, including plug-in and hybrid cars, by 2025.
  • BMW has 11% share of the U.S luxury market, double Tesla’s stake.
  • BMW boosts R&D spending for vehicle electrification, which amounted to 7.1% of sales in 2018.

Source: Barron's

BMW Ramps Up Production Plans

Meanwhile, BMW has its own problems. Its own stock has fallen since mid-April on weaker than expected earnings, weighed down by a $1.6 billion charge for potential antitrust fines. Despite lower profits, BMW reiterated its commitment to raise R&D spending for electric vehicles, which amounted to 7.1% of sales in 2018.

BMW’s Series 5, its answer to Tesla’s Model S sedan, sells for about $70,000. But BMW's lowest-priced BMW 3 Series sedan retails for approximately $40,000. This partially explains why Tesla’s $35,000 price point promised for its first mass-market vehicle has been so important for the company.

While Tesla has ramped up production of its new Model 3 sedan, BMW is already a significant player in the electric vehicle place, delivering over 27,000 electric cars so far in 2019. For comparison, Tesla has delivered over 63,000 EVs in the first quarter. BMW plans to roll out 25 new electric-vehicle models, including plug-in and hybrid cars, by 2025.

BMW's primary advantage is that it currently maintains a 11% share of the U.S luxury market, amounting to roughly double Tesla’s stake, and BMW is big in Europe. “In Europe, our percentage of electrified vehicles delivered is three times the industry average,” said Chairman Harald Kruger. “In 2018, we were the market leader for electrification in both Europe and Germany—not just in the premium segment, but in the market as a whole."

Looking Ahead

BMW's assault puts significant pressure on Tesla as it attempts to raise additional funds to cover its cash losses. As a result, "Some of the rational bulls may need to reassess the idea that Tesla will become a profitable auto [maker]," according Barclay's analyst Brian Johnston, as cited in another Barron’s report. That reality will make it harder for Tesla to fend off BMW and other rivals.