High-end electric car sales lag as buyers favour 'ultimate' ICE models

BMW CEO Oliver Zipse justified low i7 sales as "not a surprise"

BMW sold 245 i7s in China during the first half of 2023, compared with around 5000 7 Series

JLR’s comparatively late entry into the top end of the EV segment  - starting next year with the electric Range Rover and following with Jaguar in 2025 – looked like tardiness as rivals such as BMW and Mercedes-Benz moved much earlier with models such as the BMW iX, BMW i7 and Mercedes EQS.

However, in the unpredictable world of EVs, JLR looks like it has caught a break in its timing as its rivals struggle to generate buyer interest in electric models costing upwards of £100,000 and beyond.

Patchy demand is being felt globally but especially in China, where the internal combustion engine still rules at the top end. The country has captured global attention for the sharp growth of its EV market, but rather than the top-down approach taken by automakers in Europe, the action is all below prices equivalent to £35,000.

“This level of adoption has not yet happened in the premium or in the luxury segment [in China],” said Mercedes CEO Ola Källenius on his company’s second-quarter earnings call. “Many customers view the S-Class with an electrified high-tech V8 as the ultimate buy.”

All the premium automotive company quizzed by analysts on their quarterly earnings calls faced the same question: why aren’t your flagship EVs performing? 

On BMW’s call, one analyst quoted sales figures for i7 electric limousine in China of just 245 in the first half of the year, compared with around 5,000 for the ICE 7 Series. BMW CEO Oliver Zipse replied this was because BMW launched the car in more expensive grades first and that sales will pick up with the single-motor i7 eDrive50 that significantly undercuts the dual-motor xDrive models on price. “The lower figures are not a surprise,” he said.

For Adrian Mardell, CEO of JLR, the same question about sluggish figures for top-end EVs was easier to field. “The observation behind the question is correct,” he said on JLR’s earnings call, again singling out China. “Data says above those levels [¥400,000] Mercedes and BMW are selling much stronger in traditional combustion engines than EV at this point in time.”

Mardell also said that even PHEV power wasn't in that much demand at the top end in China – something that JLR does offer for its top-end SUVs.

However, he expressed confidence that customers would be there for the electric Range Rover, which will be available to order from the of this year, with deliveries starting in 2024 and early 2025 in China.

“Two years down the line, it will be very difficult to predict exactly what the take-up rate will be,” he said. “We’re confident that if we offer brilliant modern luxury offering, then in time the transition from ICE to BEV will actually happen.”

In the UK too there are signs of sluggish take-up at the top end of EVs. For example, sales of the still relatively new BMW iX – which starts at £69,905 and climbs to £122,775 – are down 12% in the first six months of 2023 compared with the same period last year.

The fall in demand for the iX is worse across Europe, but global sales of the SUV were saved by a wider roll-out in the US, which is now the model’s biggest market and contributed to its 65% growth to 21,172 sales.

What’s unclear, though, is how much of that demand is organic and how much is stimulated by discounts. In the UK, for example, BMW offers a discount of nearly £6500 on the iX if you take the financing option.

Mercedes’ move to direct sales means its incentive path is more limited, but it has increased the fee that its dealer ‘agents’ make on each EV sale from 5% to 6% of the total price – an increase of 20% – to help drive demand.

That fact was revealed by dealer group Penske – operator of the Sytner group in the UK – on its earnings call, in which it too was asked about sluggish sales of high end EVs.

CEO Roger Penske revealed that in the US, the company was sitting on EQS stock that would fulfil demand for the next 190 days, compared with 113 days for Mercedes EVs overall.

“We're seeing discounts and also incentives here in the US, or remove this you've seen what's happened domestically here with Ford,” CEO Roger Penske said, referring to Ford’s $10,000 price cut on the base-model F-150 Lightning.

He also called on premium car makers and their captive finance companies to “step up” on residuals for EVs. If residual values are set too low, meaning a pessimistic outlook on EV used prices, that pushes up finance costs amid already high interest rates. “I think it's sticker shock for the customer,” Penske said, referring to high EV prices across the board.

Overall, EV sales are still on the rise. For example, the UK saw growth of 38% in EV registrations in the first seven months, giving EVs a share of 16% of the market, up from 14% the same period the year before. 

The premium leaders are still growing EV sales globally. The Volkswagen Group, including Audi, recorded a 48% jump in EV sales to 321,610 in the first half of the year. Mercedes recorded a 93% jump to 112,850, while BMW recorded a 94% increase to 152,936.

BMW is confident that it can hit its target of 15% EV sales by the end of the year. 

Interestingly, this EV growth came at the expense of PHEV sales, which dropped 5% at Mercedes to 74,758 and 15% at BMW to 92,532.

But it’s also clear that car makers are having to push EVs more forcefully amid high list prices and steep electricity costs. The latest What Car? Target Price report shows that savings on EVs in the UK are at an all-time high of 5.3%, or £3281 per car.

Car makers – premium or otherwise – are having to work harder to convince customers to make the switch. “The early adopter phase is over in the BEV business,” said Källenius. “Every early adopter probably has a BEV now.”

Volkswagen Group CEO Oliver Blume warned of a “slower development” of the European EV market. “We felt a certain degree of reluctance from our customers since the beginning of the year,” he said.

There is one degree of comfort the VW Group can take from the current uncertainty at the top end: sales of the Porsche Taycan in Europe and the UK remain strong, even if they are declining in the US.

JLR is confident that at the top end at least, sentiment will change by the time the Range Rover BEV comes onto the market. Said Mardell: “We’re good with the timeline. People told us we were too late, but we never actually believed that.”