The eye-popping discount isn’t a fluke. It’s a sign of the daunting economics facing carmakers during the slow shift to EVs
By GABRIELLE COPPOLA / Pic By BLOOMBERG
Mike Piccolo got a call from a friend about a deal on a new BMW with a price so cheap he thought it was a joke.
The 45-year-old financial advisor from Ramsey, New Jersey, thinks of himself as a car nut, and his buddy is the kind of guy who likes to trawl the Internet for car deals.
This one appeared on a website, Leasehackr, frequented by fellow bargain hunters: A two-year lease on a 2017 BMW i3, the luxury automaker’s bug-like electric car, for just US$54 a month.
“The car’s US$50,000 (RM198,000),” Piccolo said. “How are you getting it for US$50? iPhones aren’t even US$50 a month!”
Someone on the website posted the details of the US$54 lease, and the prospect of an impossibly cheap luxury car became almost like a dare to Piccolo.
He had to figure out a way to put some of Germany’s finest electric engineering into his driveway for less than an eighth of what it would cost to lease one of Bayerische Motoren Werke AG’s cheapest models, the BMW 3 Series.
The eye-popping discount wasn’t a fluke. It’s a sign of the daunting economics facing carmakers during the slow shift to electric vehicles (EVs).
Even when selling to enthusiastic early adopters, automakers pile some of the highest incentive offers onto electric models.
Additional state and federal tax credits available to buyers of new EVs combine to create deep discounts. That still hasn’t been enough to stimulate demand.
As automakers sink billions into electrification efforts, the reality is that drivers don’t yet want to buy enough EVs to create the sales volume needed for them to make a buck.
The number of battery electric models in the US is set to grow fivefold by 2022, but EVs accounted for 0.6% of total US sales last year. Right now, there are only 18 options to tempt US buyers.
“There’s an issue of EVs being able to stand on their own in the marketplace without a credit,” said Jeff Schuster, an analyst at LMC Automotive. “To get the mass market into them, it’s got to be more cost competitive, and it’s not at this stage.”
Expensive battery technology has turned the electric future into a money-losing present.
The profitable SUVs and pickup trucks sold by General Motors Co help cover the loss of about US$9,000 every time someone drives an electric Chevrolet Bolt off a dealer lot. The electric version of the Fiat 500 subcompact sells at a staggering US$20,000 loss in the US.
The top-selling EV company in the US, Tesla Inc, is notoriously unprofitable and managed to go US$2 billion into the red on US$8.5 billion in sales last year.
“It comes down to the economics of the tech: Is it profitable or not?” said Kevin Tynan, a Bloomberg Intelligence analyst. “As long as it’s not, you’re going to get a half-hearted effort to sell the things.”
That dynamic has played out with BMW’s i3, which has struggled to lure American buyers since its 2013 debut.
Part of the problem was timing: BMW brought out the compact city car just as petrol prices tumbled, luring Americans back to the petrol-guzzling SUVs they know and love.
The limited driving range — originally 80 miles (128.7km) per charge — and unusual design only narrowed its appeal.
The latest version, with a US$44,450 price tag, can go up to 114 miles on a single charge, still less than half the 275-mile range of Tesla’s Model S.
The German carmaker sold 6,276 i3s in the US last year, a 17% drop from 2016, according to Autodata Corp. Global sales rose 23%, to 31,482 units, buoyed by a redesign over the summer.
Next up: BMW’s MINI brand will introduce an electric version next year, followed by a battery-powered BMW X3 SUV in 2020.
BMW’s i brand is meant to be an incubator for technologies that will ultimately be incorporated into full model line-ups. But sluggish sales prompted a pause before adding more electric-only models to the line-up.
“It’s slow — and, in terms of over-hyped, we need time,” said Joachim Kolling, the head of energy services at BMW, in response to a question as to when he expects to see an uptick in industry-wide sales of EVs.
“It’s a long-term race,” Kolling said at a conference in New York last month.
Piccolo is the rare EV enthusiast who went out to buy the original BMW i3 back in 2014, and then he added a Tesla to his garage.
He now feels he took a bath on the first i3, paying about US$500 a month for inferior battery technology. This time around, he vowed to be more frugal.
The auto stars seemed to align in his favour. Americans are abandoning compact cars at a stunning pace, and that’s contributed to the i3’s lagging US performance, said Michelle Krebs, a senior analyst with Autotrader.
EVs also don’t fare as well as conventional cars in the used market, since heavy discounts have eroded their value. Plus, used-car buyers don’t benefit from state and federal tax credits.
As a result, most EV drivers in the US don’t buy. Lease rates hover at 80% for battery-electric cars in the US, compared to a 30% industry average, according to Bloomberg New Energy Finance.
And good deals abound: The 2018 Honda Clarity can be leased for just US$199 a month after a US$1,499 down payment.
When you lease a car, you’re essentially paying the car company for the amount the car’s value will depreciate over the life of the lease contract, broken up into monthly payments.
Automakers will often low-ball the depreciation estimate to lower your payments and close the deal, but they do so at their own peril, since they’ll be stuck trying to sell the car at true market value after you’re done.
That’s a particularly risky game with EVs, since they depreciate so steeply.
Of six different 2018 EV and plug-in hybrid models sold in March, the i3 had the lowest forecast residual value, at 27% of its original price after three years, according to researcher ALG.
The US$54 lease deal reported on the Leasehackr website, which was confirmed by documents viewed by Bloomberg News, is an extreme example of this game.
For Piccolo, finding a dealership willing to match wasn’t easy. His bargain-hunter friend, Dan Kim, called about 15 before he found BMW of Oyster Bay, out on New York’s Long Island. Even then, when they showed up to lease the cars, Kim said the dealer balked at the final price.
Still, the negotiation ended with a monthly lease priced of US$112, less than a monthly pass for the New York subway. Not bad for a car with a fully optioned sticker price of US$51,695.
Piccolo and Kim provided an outline of their negotiating tactics.
To start, they asked for a 14% discount from the sticker price and ended up with 13%. A bunch of special perks helped pull down the price.
Since Piccolo owned a BMW already, he received a US$2,000 loyalty credit, and he applied a US$500 discount with BMW that was available through his job.
Added to that mix were a US$7,500 federal EV tax credit, which BMW subtracted from the price; New Jersey’s EV tax breaks (eligible even when residents purchase a car elsewhere); US$2,000 in cash incentives; and a US$1,000 discount for attending a BMW promotional event.
Piccolo, who covered his lease in a single upfront payment of about US$2,700 after he added bigger tyres, now owns exclusively EVs.
He said he’s certain the technology will catch on in the US, once battery range improves, because they’re fun to drive. His wife still teases him about his “goofy” looking i3, but he feels he’s setting an example for the next generation.
“I have three little daughters, and all their friends ask, ‘What is that? How does that work?’” he said. “It’s an education for them.” — Bloomberg