You would've already know that BMW will be fast tracking development of the hybrid 5-series and 3-series to bring them into production as early as next year (5-series). Production of the hybrid 3-series is expected to follow soon.
Some motivating factor behind BMW's move and their implications :
Like many other luxury car maker, BMW is particularly vulnerable to the new European Union fleet emission cap. BMW's average fleet CO2 emission was 150g per km in 2009, down from 156g per km in 2008. With the 3-series being their volume seller, BMW cannot realistically reduce their fleet wide average to the EU target of 130g per km by 2012, unless BMW sells substantially more lower emission cars, and here is where the future sub 1-series FWD BMW model and the MINI comes in, plus of course the 3-series hybrid.
But BMW have always been a champion of clean diesel technology, looking at hybrids with a very sceptical view but at the same time knows that hybridization may be trend that BMW, irrespective of whether the company agrees to the hybrid solution or not, cannot afford to ignore.
I once spoke to a Japanese dealer of a European premium brand and we were talking about the failure of Lexus to capture the lead in the Japanese premium market despite its success in America and certain parts of Asia. He went on to explain that VW is the top import brand in Japan, with BMW and Mercedes following behind. Lexus have quite a bit of catch up to do and has so far failed to capture the emotional attribute of affluent Japanese buyers, who have a strong desire for European imports. However he cautioned that the days of German brands leading the Japanese market premium segment may be numbered unless the Germans act fast to introduce a hybrid. Ever since introduction of significant tax breaks to promote hybrids, sales of Lexus hybrids have shot up rapidly. In 2009, total sales of hybrid vehicles in Japan tripled that of 2008.
In Japan, besides having to purchase a "parking spot license" to register a new car, there is also an automobile registration tax which is about 5% of the car's value and another "weight tax." Buyers of hybrid cars are exempted from the last 2 items (kei cars are exempted completely of all 3 tax elements).
Dealers of European premium brands in Japan are hurting from the loss of sales as many potential customers now choose a Lexus hybrid over a BMW or Mercedes or an Audi. Japan is currently the second largest luxury car market after China, followed behind by South Korea and Taiwan. So obviously this has very serious implications to BMW. Every German car maker, not just BMW feels the impact to what they see as an unfair scheme, with the sole beneficiary being only Toyota's Lexus. Again, this reminds us of a recent post regarding Toyota's influence in Japanese politics and how the company wields strong influence via a powerful industry lobby group to have policies made favourable to Toyota. But this is the right of the government and there is no way one can prove conclusively that this is an anti-competitive / protectionist move.
This problem is not only confined to Japan. In Thailand aka the Toyota Kingdom of Siam, BMW and Mercedes (as well as Ford) have complained that the tax breaks laid for the Camry Hybrid is clearly unfair against them. Mercedes have been selling a more economical and cleaner bi-fuel E200 NGT before the Camry Hybrid while neither Mercedes or BMW's highly economical clean diesel models enjoy any preferential tariff. Toyota can even afford to snub environmental concerns by not even bothering to tune the Camry Hybrid's engine to be E20 compatible, and decides the forgo the additional E20 compatible vehicle tax break. Possibly out of concern that if the price drops too low it would position the Camry Hybrid too close to the regular Camry models and too far away to snatch sales from the BMW 3-series and Mercedes C-class
A similar trend is also playing out in China, currently the world's largest market.
But there is no point making any further noises as the German government don't get too involved with businesses of German companies due to very strict conflict of interest and transparency regulations within the EU. So they are on their own.
The other reason is however less political - it seems that we are close to reaching a stage where clean diesels, which are so popular in Western Europe, accounting for more than 60% of all passenger cars sold are no longer economical to run / produce. At the current Euro5 and future Euro6 (effective 2014), diesel engines require significant redevelopment to keep them road legal in Europe. Already there is a need to add diesel particulate filters (DPF) and selective catalytic reduction (SCR) systems into diesel engines to keep them emission legal. Diesel engines, by nature of their compression ignition require a stronger engine block and are more costly to build. But owners recoup this additional cost back from the greater fuel economy. However, with rising demand from diesel machineries and farm equipments, especially from China and India, the price gap between petrol and diesel fuel have narrowed substantially in recent times, sometimes even exceeding that of petrol. A diesel car owner will now have to drive substantially further distance before recouping the higher price of a diesel engine model.
With DPF and SCR (with also require regular maintenance of the urea tank), engine production and maintenance cost (additional inspections required) are also increased. Engine computer software have to be written to ensure the systems are properly monitored and working. To comply to EU6, some car makers may even have to include engine start-stop functions.
Coupled this with the fact that very few governments outside of Europe are promoting clean diesels, the business case for clean diesels is becoming less attractive compared to a hybrid.
Related link : The great powertrain debate - diesel vs hybrid
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