The new BMW i4 doesn’t seem real. Its matte finishes and sedate styling seem out of character for a car company focused on drivers.
The sports sedan was supposed to debut last week at the Geneva International Motor Show. The coronavirus spoiled the official reveal, but the message is clear: Electrification is coming.
Investors should get ahead of this trend. The time to buy platform leaders is now, amid the market turmoil.
Big changes are rare in the car business. Motorized vehicles were perfected in Germany and France during the last part of the nineteenth century when industrialists such as Gottlieb Daimler, Karl Benz and Nicolaus Otto began fitting internal combustion engines into carriages for wealthy customers.
It was not until 1908 that Henry Ford changed the rules of the game. His Model T used state-of-the-art manufacturing to reduce prices and bring cars to the masses.
Offered at $825, the Model T was a 20-horsepower coupe with a detachable cylinder head and a two-speed transmission. It was designed to scale. When the vehicle ended production two decades later, its price had fallen to $290 and over 15 million units had been sold.
The new i4 is not a budget car by any stretch of the imagination. Its DNA is pure BMW.
From the outside, it looks every bit a German luxury car. It’s long sloping hood is still adorned with the familiar double kidney shaped grille. And like the vertical air dams on the flanks, they’re mostly for show.
The i4’s electric motors don’t gasp for air.
Those motors can vault the car to 60 miles per hour from a standstill in about four seconds. BMW product managers claim the vehicle is rated for 390 kW, or 520 hp. All that power is routed to the ground with electronic sensors, software and three driving modes: Core, Sport and Efficient.
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The best news for investors is that BMW is not alone in the push toward electrification.
The Wall Street Journal reported last December that automakers in 2019 committed $225 billion for future electric fleet plans. A joint venture between General Motors (GM) and LG Chem of South Korea, for example, will build a giant battery factory in Ohio. And Ford (F) launched pre-orders for its Mustang Mach-E in January. The cross-over sport utility vehicle is available starting at $43,895.
Automakers see the writing on the wall: The future is electric because policymakers in the largest automobile markets in the world are demanding greener vehicles.
California is at the vanguard in the United States. In Germany and China, lawmakers are moving even more quickly toward electrification.
According to a Bloomberg report, by 2035, the Chinese government wants 60% of the vehicles sold there to be electric. Automakers have no choice but to adapt.
Aptiv PLC (APTV), a spinoff from Delphi Automotive, is a major partner to most of the leading automakers in the world. Its divisions build electric wiring assemblies, connectors, harnesses and electrical centers.
The Irish company also makes the advanced software systems that control infotainment, connectivity and active safety technologies that are vital to the future of greener, safer vehicles.
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Managers claim that by 2022, automakers intend to launch 45 new high-voltage platforms spanning hundreds of vehicles and 13% of global vehicle production. If this comes to pass, it would be a monumental shift in strategy.
Since 2016, Aptiv has booked $4.5 billion in new orders for these systems. Managers expect sales are expected to climb to $1 billion annually by 2022, a 40% compound growth rate.
During 2019, the company won contracts for the Tesla Model Y and Model 3 launching in China. Aptiv will also supply the low-voltage battery system for the Fiat 500 BEV. The firm also has an agreement to build battery and EV charger components for BMW.
The i4 is scheduled for production in the second half of 2022, although customers will be able to place orders next year. BMW managers say they will construct the EV alongside the production lines for its popular 3 series and 4 series gas engine cars.
That comingling is something the company never did for the i3 EV and the i8 hybrid, the abandoned predecessors to i4. Clearly, BMW is planning to reset its EV fortunes.
The automaker will launch in 2020 the Mini E and a small SUV for the Chinese market called the iX3. The i4 and the iNext, a larger SUV, will hit the market in 2021.
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The EVs will get a bump up in range from previous electric BMWs. At about 270 miles for a single charge, both should be able to handle most commutes.
Relying on commuters is oddly out of character for BMW. The German company built its reputation around the driving experience. Get used to the change in direction. The industry is at a crossroads. Survival in the new greener environment means embracing electrification. This needs to happen sooner than later.
Aptiv is one of the best ways for investors to take advantage of the inevitable transition
Shares are down 19.7% in 2020. The stock trades at 13.5 forward earnings and 1.4x sales, for a market capitalization of $20 billion. Given the potential scope of electrification, these metrics are reasonable.
Growth investors should consider using the current weakness to make new purchases.
Best wishes,
Jon D. Markman
