Charging up

BMW's big electric car gamble begins to pay off

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BMW's boss likes to compare the rise of electric vehicles to a marathon, rather than a sprint. And while Harald Krueger is still miles away from the finish, he has definitely got into his stride.

Better batteries, beefed-up recharging infrastructure, and growing government subsidies are boosting the popularity of electric vehicles. Thanks to early investments, BMW is in the pole position to benefit. The group sold 87 percent more electrified vehicles in the first six months of 2016 than it did a year earlier. Demand for some plug-in hybrids is so strong that customers have to wait almost half a year for these models.

Starting almost a decade ago, BMW forked out an estimated 2 to 3 billion euros for the design of an all-electric vehicle from scratch, the BMW i3. It currently has six more electrified models in the showrooms, one of the broadest fleets in the industry. And Krueger said in March that a new all-electric luxury vehicle would be launched at the beginning of the next decade.

The early push into electric mobility lifted research and development expenditures and investment spending to 12.8 percent of sales in 2013. BMW's past outlays are starting to pay off, even though this ratio has fallen by almost a quarter since then. Yet in June, four percent of all BMWs sold in Western Europe were electric. In some countries, like the Netherlands, the share was close to 15 percent. This makes rival Volkswagen's target of lifting the share of electric cars to 25 percent by 2025 look timid.

Yet for now, stock market valuations do not fully reflect BMW's first-mover advantage in electric cars. The company is trading at just eight times the next 12 months' earnings. That may be a 11 percent premium to Daimler but is 12 percent below BMW's own five-year average, Thomson Reuters data shows. If Harald Krueger keeps up the pace in the marathon, he can rival valuations delivered by his predecessors.