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Benz, BMW may ditch compact cars

German premium marques likely to prioritise profitable models over volume-sellers

17 May 2022

THE future looks uncertain for front-wheel drive compact cars from Mercedes-Benz and BMW as the German premium marques look to prioritise profit margins on high-end models – rather than high-volume models – with their upcoming battery-electric products.


Speaking at the recent Financial Times Future of the Car 2022 conference, Mercedes-Benz chief executive Ola Kallenius said the company had virtually sold out its electric cars because tight supply chains made it difficult for the firm to keep up with rising demand.


Customer response to the company's EQ family of electrified cars had been "so tremendous that we are doing everything we can to get the cars to the customers as fast as we can," he said.


“We are now in full development of a fully dedicated electric architecture for AMG," Mr Kallenius revealed, adding that the platform would reach the market "sometime toward the end of 2025”.


Mr Kallenius said more details of Mercedes-Benz’s plans for its product portfolio would be unveiled as part of an upcoming strategy update but hinted toward a cull of smaller models.


“We would rather be looking up than down”, said Mr Kallenius, which does not bode well for the outlook of Sindelfingen’s A- and B-Class models, as well as their CLA four-door coupe or GLA and GLB SUV offshoots.


“We’ll talk more next week, but it's not our goal to be a competitor of volume producers. That’s not what the Mercedes-Benz brand stands for,” Mr Kallenius told Autocar.


Sales volumes of Mercedes-Benz’s more compact products have been constrained in recent times as the firm has prioritised semiconductor supplies for more profitable models.


Without naming any models in particular, Mr Kallenius confirmed that the high profitability of the company during this period had provided insights into operating more profitably.


“Even before the supply constraints started, we had made it clear that our strategy isn't to chase volume but to chase value for our customers and company,” he said.


The year 2025 is going to be a pivotal one for Mercedes-Benz’s arch-rival – BMW – as well.


BMW chief executive Oliver Zipse last week announced that its Neue Klasse – the Munich-based company’s new dedicated all-electric model platform – will go into production at BMW’s new factory in Debrecen, Hungary in three years’ time.


The company will lay the foundation stone for the plant next month and the first pre-series cars, widely expected to be units of the next-generation 3 Series (or one of the brand’s other mid-sized products) will roll off the assembly line 26 months later.


BMW cars underpinned by the company's Neue Klasse (New Class) electric platform will be "as profitable as vehicles with state-of-the-art combustion engines," Mr Zipse added.


In particular, BMW expects to extract cost savings of 30 per cent from the Neue Klasse’s new cylindrical cell format, which is similar in design to that used by Tesla, Bloomberg reported.


BMW will offer a total of eight battery-electric vehicles (BEVs) by the end of this year but Automotive News Europe quoted Mr Zipse as saying the number is even greater.


"If we include pre-production vehicles, we are already building 15 BEVs (one of which is the upcoming iX1 small SUV)," he said.


Speaking of the soon-to-be-unveiled (and Australian market-bound) all-electric iX1, Autocar has reported that the future of small, front-wheel-drive BMW models was "under review". 


Following the recent launch of the BMW 2 Series Active Tourer abroad, and next year’s launch of a new range of Mini models, the primarily front-wheel-driven architecture that underpins the 1 Series, 2 Series Gran Coupe, X1 and X2 will be 12 years old in 2027. 


Industry observers anticipate that by 2027 most cars with internal combustion engines (in Europe) will probably have to be plug-in hybrids with a range of about 64km or so. This would necessitate a larger architecture, resulting in longer and more expensive vehicles.


Considering that, a BMW source told Autocar senior planners and officials at the Bavarian firm were reconsidering the business model of producing smaller models based on the group’s UKL2 platform or its FAAR (optimised for electrified powertrains) derivative.


"There are a number of issues to consider," the source said. “Firstly, the size of UKL makes electrification harder because the potential size of a battery is restricted.”


It also remains possible that ever-tightening EU emissions rules will at least require more under-floor space to accommodate a notably larger catalytic converter. Again, this could push the BMW Group to favour bigger models that will be more expensive – and profitable.


BMW may be dissuaded from giving up on its compact cars, which – critically – do not sell well in North America, because future products could still be derived from models in the Mini brand’s stable (Mini is earmarked to be an all-electric brand by 2030). 


What’s more, “a compact model is important as 'my first BMW'. If we left that market, we would be giving the market share away to rivals," the source was quoted as saying.


It is confirmed that Audi’s smallest hatchback, the A1, will bow out when its current lifecycle ends and the brand’s Q2 compact crossover is also likely to be culled.


This, Autocar suggests, underlines premium brands’ challenge to build electrified small cars at lower price points.

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