BMW's Crossroads: Can Traditional Strengths Overcome EV Stumbles?

The automotive industry is at a turning point, and nowhere is the tension between old and new more evident than at BMW. While the German automaker continues to thrive in traditional markets like Europe and its iconic MINI brand, its electric vehicle (EV) segment is faltering. A stark disconnect between the resilience of internal combustion engine (ICE) and hybrid sales and the plunge in battery electric vehicle (BEV) demand raises critical questions about BMW's path to long-term growth. Can its legacy strengths offset the risks of falling behind in the EV race?

The Diverging Sales Landscape

BMW's Q2 2025 results highlight a fractured global market. While global sales edged up 0.4%, regional disparities dominate:
- China: Sales collapsed by 13.7%, with tariffs on locally produced EVs (like the iX3 and electric Mini) and aggressive pricing from Chinese rivals like BYD eroding demand.
- Europe: Plug-in hybrids and electric Minis drove a 10.1% sales surge, underscoring the continent's preference for transitional technologies.
- North America: A 0.4% Q2 dip masked deeper issues: BEV sales plummeted 21.2% year-over-year, with the i5 sedan's sales halving to 1,434 units.

Why EVs Are Stalling

BMW's EV struggles stem from structural challenges:
1. Competitive Pricing: Tesla and BYD dominate with cost-efficient models, while BMW's premium pricing lacks subsidies. None of its EVs qualify for the full U.S. $7,500 tax credit due to battery sourcing restrictions.
2. Supply Chain Vulnerabilities: China's control over lithium and rare earth minerals poses risks, compounded by U.S. tariffs on copper (a 50% tax) and unresolved EU tariffs on Chinese-made BMW EVs.
3. Innovation Gaps: Tesla's software-driven approach and BYD's production efficiency highlight BMW's need for sharper differentiation.

In the U.S., BMW's EV market share dipped to 4.8% in Q1 2025, trailing Tesla (43.5%) and Hyundai/Kia (9.3%).

The ICE and Hybrid Lifeline

Traditional segments are propping up BMW's bottom line:
- Passenger Cars: Surged 11.2% in H1 2025, driven by demand for ICE and plug-in hybrid models.
- MINI Brand: Sales soared 19% in H1, with Q2 growth hitting 29.1%, capitalizing on its quirky, urban appeal.
- SUVs: Declined 5.9% in H1, reflecting broader softening demand for large vehicles.

This resilience buys BMW time—but not indefinitely. Its 2027 goal of 50% EV sales appears increasingly out of reach, with BEVs accounting for just 22% of Q2 sales.

The Path Forward: Neue Klasse and Beyond

BMW's hope lies in its upcoming Neue Klasse platform, a modular EV architecture designed to slash costs and boost range. Set to debut in 2026 with the iX3 and i3, it promises vehicles priced closer to $35,000—half the cost of current models like the i7.

However, execution risks loom. Lithium prices () remain volatile, and EU-China tariff talks could swing €500 million in annual savings by 2026. If unresolved, margins will suffer.

Investment Considerations

BMW's stock currently trades at 6.8x EV/EBITDA, below its five-year average of 8.2x, offering some value. Yet near-term risks are elevated:
- Catalysts to Watch:
- EU-China Tariff Deal: By July 2026, a resolution could lift profitability.
- Q3 BEV Sales: A rebound would signal stabilization.
- U.S. Trade Policy: Changes to tax credits could level the playing field.
- Alternatives: Tesla and BYD offer clearer EV growth trajectories, while Volkswagen's ID.4 and electric Porsche Macan are gaining traction.

Conclusion

BMW's ability to navigate its EV slump while leveraging ICE and hybrid strengths will determine its fate. The Neue Klasse platform holds promise, but near-term hurdles—including tariffs, supply chain costs, and competitive pressures—demand caution. Investors should hold BMW shares with a long-term horizon but prioritize alternatives for short-term EV exposure. The automaker's legacy is its greatest asset—but only if it can electrify its future without losing its soul.