BMW's Sebastian Mackensen: BEVs will drive demand long term

Tesla knocked the U.S. luxury sales crown off BMW's head last year, ending the German marque's three-year reign in the segment.

But BMW plans to beat the American upstart at its own game. Over the next few years, BMW will add competitively specced battery-powered models to its lineup of sedans and crossovers.

Last year, electric vehicles accounted for 5 percent of BMW's U.S. sales, Sebastian Mackensen, CEO of BMW of North America, told Automotive News.

Mackensen predicts battery-electric vehicle share will "more than double" this year and outpace BMW's overall sales growth in the U.S.

"There's still a healthy and robust demand for plug-in hybrids, but [BEVs] will drive demand long term," he said.

Despite the expected long-term market shift toward battery power, Mackensen is confident of near-term demand for combustion engines.

"We're selling the Ultimate Driving Machine — that can be the ultimate combustion engine-driving machine, and it can be the ultimate electrified machine," he said.

Mackensen, 51, spoke with Staff Reporter Urvaksh Karkaria in April about BMW's business outlook, tightening emission regulations and the changing retail landscape. Here are edited excerpts.

Q: What are the top two priorities in the near term?

A: The transition of our business to expand into battery-electric vehicles.

The other topic is to continue to foster our business, including digital channels together with our [retail] partners.

What headwinds does BMW's U.S. business face?

The industry is in a transformation. We have a myriad of regulations coming our way. I don't know of any industry that gets treated similarly, where you can comply with one regulation and still be in noncompliance with a different one that targets the same thing.

All of this is happening while we are running at full steam. That is the biggest challenge for all of us: How you do even more things simultaneously?

You cannot stop doing A because now you must also take care of B. We must make the best out of it in the marketplace, sometimes together as an industry and often individually as an OEM.

Improving leasing penetration is a priority for BMW dealers. How do you grow the leasing business?

In the aftermath of the pandemic, lease penetration did go down, maybe in a way that was more than the dealers and we would prefer. It was relatively less attractive to consumers than other vehicle acquisition avenues.

But we have instituted measures to make leasing attractive (via lease incentives). We have seen a pickup of leasing activity in Q1. I wouldn't see a reason why that would not continue throughout the year, even increase a little bit further.

[The $7,500 clean commercial vehicle tax credit has] positively affected the monthly lease price from a consumer perspective. It has impacted the effectiveness of the leasing offers and volumes. It has had an impact but hasn't suddenly tripled the volume of leasing.

Industrywide, battery-powered vehicles accounted for 7.5 percent of new-vehicle sales in April, up from 5.7 percent a year ago. Is the pace of adoption surprising?

We look at scenarios where you have an upper and a lower range. I would have thought the acceleration of the demand curve might go a little bit slower.

Government regulations and customer demand will shift over time, as will percentages of [BEV] sales. We are signaling to our global colleagues our demand and trying to get the right vehicles to this market.

What is holding back EV adoption?

Electric vehicles need to get charged. They cannot go to a fuel station and charge in three minutes. So we need charging infrastructure.

A lot of that is happening in single-family homes. But to drive market adoption to 50-plus percent, that cannot be the only charging solution. This is where governments, communities and manufacturers are positioned to do more.

How do you balance today's cash cow internal combustion engine business with the high-potential EV business?

I'm more concerned with positioning the brand where you have choices. So one customer might go to version A, and one customer might go to version B.

We don't have to tell every customer who walks into our stores and wants to buy a 3 Series 330i that they should change to an i4. We offer a variety.

BMW lost its luxury segment crown to a surging Tesla last year. How do you defend market share?

Tesla has been at the forefront of this whole transition. That's a fact, and you have to give that to them.

But I don't like to obsessively look right and left at what others do, but instead focus on our strengths and listen to feedback from customers who can finally drive an electrified car that drives as a BMW does.

We have a dealer network in the country with a huge capability in service and taking care of the customer experience. Those are the strengths we have to focus on.

Automakers are going for different models to work in the market. We want to improve how we do our business, which will ultimately bring us forward.

The EPA in April proposed new rules that could lead to EVs making up 67 percent of new light-vehicle sales in the 2032 model year, according to agency projections. Is that doable with a mixed powertrain strategy?

That's the million-dollar question.

We are fully invested in the transition [to EVs]. But we are a global company operating in markets with a 10 percent EV mandate for 2030 or 100 percent. [A diversified powertrain portfolio] allows us to fulfill current demand and be flexible to adapt.

Based on charging infrastructure and customer demand, I don't think [the proposed targets] in this market [are] the right number. Let's see how this continues. You might see different state emissions regulations in the U.S.

What challenges and opportunities does the Inflation Reduction Act present for BMW?

The IRA supports the transformation by [incentivizing] the acquisition and manufacturing of electric vehicles.

From our point of view, what we don't think is so great are some of the eligibility requirements for automakers and customers to avail of the subsidy. We are a huge manufacturer in the U.S., but we happen not to build electric vehicles here today.

We like a level playing field in markets in which we compete. Let automakers compete and let the consumer decide without subsidies based on conditions that are not easy to meet.

Will the Inflation Reduction Act make North America a priority for BMW's long-term industrial operations?

Long-term decisions on where to manufacture are based on producing relevant vehicles in the relevant markets. The Spartanburg, S.C., factory is our X-model factory, and [the U.S. market is] the biggest takers of those vehicles.

BMW's announcement [late last year] to build EVs in Spartanburg, even though it came shortly after some of the IRA discussion, that's a project in the making for several years. It was not a reaction to IRA.

Is the U.S. market of higher relevance for the BMW Group? Yes. Does this mean additional manufacturing beyond North America? That's not a question I can answer with a yes. I'm taking care of the brand, the dealers and the customers. There are other people in charge of our long-term factory planning.

What new BMW products have you most excited?

The [redesigned] 7 Series, introduced at the end of 2022, is starting to enter the market. That's exciting for 2023-2024, together with the new version of the X7 and the newly launched XM [plug-in hybrid SUV].

Those vehicles in the upper end of the segment have different use cases, designs and customers.

How are EV-only manufacturers changing the car shopping experience?

You have manufacturers selling from their balance sheets in a direct-to-consumer model. Others sell with franchised dealers as BMW does and as we plan to do.

There's a huge relevance of the online part in the shopping journey, which has grown over the past few years. Customers come much more educated to the showroom and want to do certain process steps online.

Will the new players accelerate development for the more established OEMs? Probably yes. That's a positive challenge. We will deal with it very well.