BMW strikes back at Tesla with longer-range EVs

There are more than a few spanners in the works for the global car sector at the moment. US President Donald Trump’s tariffs are forcing companies to rethink supply routes for both components and finished vehicles. China’s BYD Co. and Xiaomi Corp. are taking the world’s largest market by storm with desirable features and affordable prices. The transition to EVs is in flux virtually everywhere.

Despite all the tumult that’s prompted other players in this notoriously risk-averse business to batten down the hatches, BMW is proceeding with its break-glass procedure. Zipse has tagged the upcoming lineup with the same moniker assigned to sedans and coupes that ensured BMW’s solvency and established its identity in the 1960s: Neue Klasse, or new class.

“The product convinces,” Bernstein’s Stephen Reitman wrote in a report recapping the company’s recent capital markets day. “Our characterization of BMW as the Wayne Gretzky of the auto industry, skating to where the puck is going to be, not to where it’s been, has not changed.”

New Benchmark
Zipse, a BMW lifer, took over as CEO in 2019, just as Tesla was beginning to navigate its way out of what Elon Musk described as production hell. When Bloomberg asked 5,000 early Model 3 owners that year what cars used to be in their driveway, the survey found an alarming number of BMW deserters.

Around that time, US consumers who had $50,000 or so to spend on a fully electric luxury vehicle had two choices: Tesla’s new Model 3, or the BMW i3. Even ardent BMW enthusiasts acknowledged it wasn’t a particularly close call — Tesla’s sedan was the larger, longer-range, faster-charging option.

The same won’t be said for the iX3 that BMW will produce in Debrecen, Hungary. The company has said the SUV will manage up to 800 kilometers (497 miles) of range under Europe’s test procedure. With 400 kilowatt maximum charging, drivers will be able to add roughly enough range to get from New York to Washington, DC, after 10 minutes of plugging in.

Tesla’s longest-range Model Y tops out at 622 kilometers of range and offers a maximum charge rate of 250 kW.

“This will be the benchmark of the industry,” Zipse said. Neue Klasse will show that BMW “can build superior electric cars, and the rest of the market will have to answer.”

Of course, the 61-year-old CEO is quick to note that a benchmark is no good without a business model.

Certain elements of the Neue Klasse initiative were developed only for battery-electric vehicles — a growing segment of BMW Group’s sales, but still a minority. For every EV handed over to a retail customer in the first half of the year, the company delivered four BMWs, Minis or Rolls-Royces powered at least in part by a combustion engine.

To drive down the costs of sourcing components such as the four computers that will power new infotainment and automated-driving features, as well as more basic functions like climate control, BMW will deploy this new digital nervous system in vehicles across all drivetrains. These “superbrains” will provide 20 times the computing power of BMW’s previous system.

BMW developed the software for those features with the help of six hubs it's set up around the world through small ventures and small acquisitions in Portugal, South Africa, China, India, Romania and the US. Together, those sites employ roughly 5,000 software and IT workers.

China Factor
For all the potential upside Neue Klasse brings, the success of the project ultimately will depend on where it leaves BMW in an increasingly brutal competition with Chinese manufacturers that are undercutting the rest of the auto world.

BMW and Mini’s combined sales in China slumped 15% during the first half of the year, after sliding 13% in 2024. In a market that’s quickly going electric, local manufacturers are dominating by peppering showrooms with new models at cut-rate prices.

“There are market segments where you cannot be profitable,” Zipse said. “If it’s not profitable, we retract.”

That said, the CEO insists it would be a big mistake for BMW — or Europe broadly — to decouple from the the world’s second-largest economy.

“There is so much competency, so much innovation, so many advantages just by virtue of the sheer size and scale of China,” Zipse said. “You cannot ignore that.”

Because of relatively resilient demand for its profitable combustion engine-powered models, BMW is better positioned than mass-market producers like Volkswagen AG and General Motors Co. in China. Still, the company must change the perception that Western automakers are far behind domestic manufacturers on software and battery technology.

The iX3 will have to prove its worth relative to Tesla’s Model Y — priced from 263,500 yuan ($36,700) — and vehicles from domestic brands such as Xiaomi’s YU7, a new 253,500-yuan SUV that drew 289,000 orders in its first hour of availability. BMW sells its locally manufactured X3 SUV at a premium, starting at around 350,000 yuan.

The company has tried to tailor its models to local tastes, integrating WeChat and offering access to a China-specific app store. It’s also put the market at the front of the line for new innovations. When BMW first brings large language models into its cars next year, they’ll be debuting in China via a collaboration with the buzzy artificial intelligence startup DeepSeek.

Tesla’s Vulnerability
BMW’s Neue Klasse models are poised to strike back at Tesla at a vulnerable time.

When asked whether Musk’s unpopularity in Europe offered an opportunity for BMW, Zipse initially demurred, not wanting to wade into negativity. Then he offered a subtweet of sorts about the owner of the social network formerly known as Twitter, and what he’s done to Tesla’s brand.

Zipse said BMW puts all its focus on offering products that customers “enjoy and are proud to drive without having to justify their choice.”

“You must be aware that everything you do is being watched closely and affects your company’s brand and reputation,” he said.

At another point in the interview, Zipse suggested Tesla has dominated the EV market in the US largely because of regulations that have required an ever-greater share of each manufacturers’ sales to be zero-emission vehicles. Companies that have struggled to comply on their own have spent billions of dollars buying regulatory credits from overachieving manufacturers — and no one has been a bigger beneficiary than Tesla.

“What we’ve more or less witnessed is the transfer of funding from an allegedly ‘old’ industry to a so-called ‘new’ industry,” Zipse said. “There’s this narrative that a company’s success is all about competence and the capability of CEOs. But it’s far more complex than that.”

Tesla’s regulatory credit revenue is now under serious threat. Trump signed legislation in June to effectively void California’s program that compels sales of more zero-emission vehicles over the next decade. The president followed that up in July with his tax and spending bill that eliminated penalties for noncompliance with federal fuel-economy rules. The administration also has taken steps toward doing away with tailpipe-emissions standards, among other emissions limits.

‘Frothed-Up’
In early June, BMW invited a group of roughly two dozen journalists to Miramas, France, about 60 kilometers northwest of Marseille, to test-drive advanced prototypes of the iX3 on 80 kilometers of winding Provence roads and a test track, putting the SUV’s hydraulic shock-absorption system and automated parallel parking to the test.

During development, BMW was dead set on ensuring that Neue Klasse live up to the brand’s billing as the Ultimate Driving Machine — a byproduct of decades of engineering advances that earned its gas cars a reputation for top-notch handling. Concerned that the EVs would feel different to drive, BMW’s engineers developed the new computing system to speed up braking, recuperation and steering controls.

“While we wouldn’t usually get frothed-up about a disguised prototype of yet another electric crossover, this one moves the dial,” Top Gear’s Paul Horrell wrote. He raved about the iX3 being “better even than chauffeur-oriented Rolls-Royces” at smoothly stopping in traffic jams.

Compared to BMW’s current midsize electric SUV, the iX, the Neue Klasse iX3 handles road bumps much more smoothly, without any swaying of the shock absorbers. The upgrades to BMW’s driver-assist systems are noticeable — whereas the iX loses track easily when navigating sharp bends and signals the driver to take over the wheel on short notice, the iX3 is more capable and alerts drivers earlier. When driving on wet and curvy roads, the iX3’s traction controls kick in almost without notice and only at high speeds.

Series production of the SUV is slated to start at BMW’s newest plant in Hungary late this year, and the company is entrenching Neue Klasse at plants in China, Mexico, the US and Munich.

Transforming its hometown factory has been especially complicated. Certain buildings are being razed next door to others that keep cranking out 3 Series and 4 Series sedans and coupes, plus i4 electric cars. During peak construction at the Munich complex, the site had to accommodate an extra 400 trucks a day on top of the 750 big rigs weaving through in normal times.

“It’s a greenfield within a brownfield,” Peter Weber, who oversees the Munich complex, said during a tour last month. “We are shaping the manufacturing system for the next decades.”

Starting next year, Neue Klasse model production will initially run parallel to current cars. From the end of 2027, BMW’s flagship plant will be the first existing site in its global production network to exclusively manufacture all-electric vehicles. This will mark the end of a 75-year chapter of combustion engine cars that began with the 501 model in 1952.

The Zipse era is also winding down, with his contract as chairman of the management board ending around this time next year. His successor will inherit the ambitious plan to deploy new technology across all new BMW models, and to have electric Neue Klasse vehicles account for half of sales by the end of the decade.

Trump’s duties on cars and components will pose a challenge that dominated earnings call discussions across the industry the last few weeks. Zipse suggested on July 31 that BMW will be just fine.

“This tariff discussion is way exaggerated,” he said. “What’s much more important is the question, are the products attractive?”