It’s a wild feeling when a top executive at an automaker arguably best known for its inline-six engines (and maybe the occasional VANOS failure, if you want to get snarky) admits that internal combustion isn’t where they see the growth moving forward. And yet, here we are with BMW, of all automakers, telling us about the writing on the wall for the traditional engine.

That story leads off this mid-week edition of Critical Materials, InsideEVs’ morning news roundup. Also on today’s docket: we discuss what the latest round of Elon Musk’s compensation drama actually means, and examine where China’s BYD is at in the ever-competitive self-driving race. Let’s dig in. 

30%: BMW, Coming Off A Great 2023, Admits EVs Will Drive Future Growth

I gotta hand it to the maker of the Ultimate Driving Machine. Despite making its name on high-revving and turbocharged gas engines, it’s actually navigating the electrified transition better than most—something it probably doesn’t get enough credit for. Its new lineup of EVs like the iX, i4 and i5 is pretty excellent, and it offers a decent range of plug-in hybrids globally that are also a great option for consumers. As a result, BMW saw record plug-in car sales last year.

Now, BMW’s Chief Financial Officer Walter Mertl is open about where the automaker sees the most long-term growth, according to Bloomberg: 

“The tipping point for combustion engines was last year,” Mertl, 49, said on a call with journalists, with regulation to cut carbon dioxide emissions capping any expansion. “Future volume growth will primarily come from battery electric vehicles.”

BMW saw strong EV orders during November and December, said Mertl, with demand in Europe set to keep growing. The manufacturer hasn’t seen any pullback, and expects the new i5 sedan and additional Mini brand EVs to boost sales, he said.

“The current sales plateau of combustion cars will continue and then fall off slightly,” he said.

At the same time, Mertl joins many industry colleagues in being more circumspect about future growth. That report says “the pace of demand acceleration for EVs has become less clear,” and as a result, BMW is predicting record electric sales for 2024 but at a slower rate than in previous years: it sold 14 million EVs and PHEVs last year globally but is predicting about 16.7 million this year. In past years, sales of plug-in cars have increased to the tune of 3-4 million per year. 

Perhaps more importantly for BMW’s bottom line, it’s not only predicting cost parity with internal combustion cars by the end of the decade, but higher returns on EVs too. A lot of that hinges on the success of the upcoming Neue Klasse platform, which packs a ton of impressive technology for future cars—including what will likely be an all-electric 3 Series. 

The point is, BMW seems to get where things are going, and it’s probably up there with Hyundai and Kia in terms of companies you should pay attention to. 

60%: Tesla’s Board Will Probably Cave To Elon Musk

Tesla CEO Elon Musk has a long and storied history of just doing things no other executive would ever dream of, and that trend continues unabated in 2024. As we reported yesterday, Musk made headlines for posting on X (which, as everyone knows by now, he owns) that he’s “uncomfortable” with developing the robotics and AI products he wants at Tesla without an increased voting stake in the company. The implication of that post is that he’ll walk, or at least develop such products outside the company—something that may not be allowable under his employment agreement, not that any sort of rules have stopped him before.

How do you make sense of this move? Well, a lot has to do with an ongoing trial in Delaware over his $56 billion pay package from Tesla; he’s being sued by an investor who claims the package was excessive and a breach of the board’s fiduciary duty, as CNBC reports. That trial ended in 2022 but no verdict has been reached, so Musk is essentially asking the board to figure it out now. 

So would Musk actually leave Tesla? I won’t quite call it a suicide pact for both parties, but considering the hit to both Musk’s income and the $TSLA stock price if that happened, it’s close to that. Here’s what’s at stake via The Information: 

Of course, it’s debatable whether the shareholders really need to do that. The implication of Musk’s post, that somehow he won’t expand Tesla as much as he might if he had more stock, makes no sense even from his point of view. His Tesla shareholding, excluding the options, is worth $90 billion. That’s certainly the most liquid source of his wealth and likely the biggest. Why would he do anything to tank that? And of course, it hardly seems necessary to point out that his threat to “build products outside of Tesla” if he doesn’t get enough stock ignores the fact that he’s already doing that! Something is wrong with this picture. Still, at least Musk lets us see the picture, for whatever that’s worth.

But many analysts and investors think it’s not worth the fight. Some more analysis from Reuters: 

“Tesla’s board is generally tolerant of his erratic behavior in the past so it is easier relative to other tech firms to push through such a demand,” said Xu Jiang, associate professor at Duke University’s Fuqua School of Business.

“He will probably face stiff opposition from major shareholders such as Vanguard and BlackRock. My conjecture is that the opposition, if any, of the board members would stem from their concern of the opposition from shareholders.”

Some Tesla observers feel the company has little choice but to appease Musk or risk hurting efforts around AI and robotics.

“If he is not given what he wants, he will sit back and let them die in the vine. That’s not the best interest of investors,” said Gene Munster, managing partner at Deepwater Asset Management.

Think of the talent alone that would follow him if he went elsewhere, much as the entire staff of OpenAI did last year amid that spat. Ultimately, the Tesla board—which is largely very loyal to Musk in general—will probably just give him what he wants. And if another lawsuit emerges, Tesla will just deal with it. Being the richest man on earth means never having to say you’re sorry.

90%: BYD: We Have Autopilot At Home

On top of unseating Tesla for the global EV sales crown, rising Chinese giant BYD just announced a $14 billion tech push for autonomous driving and smart car features—something that feels suspiciously timed after CES to me. As part of that push, it’s making its own Autopilot, according to Bloomberg once more: 

BYD plans to introduce what it calls Navigation on Autopilot, which will allow drivers to take their hands off the wheel and feet off pedals in certain scenarios. The system requires drivers to touch the steering wheel every 15 seconds and will come installed in cars that cost more than 300,000 yuan. It also will be available as an upgrade option for vehicles priced at over 200,000 yuan. BYD didn’t say whether drivers will be responsible for crashes if they occur.

Advanced driver-assistance systems are increasingly a major selling point for consumers in China and beyond. Smart cars can be placed on autopilot on some highways and cities, as well as park themselves. Leading players in China including Xpeng Inc. and Huawei Technologies Co. offer ADAS features to set their vehicles apart and command higher prices.

Other features BYD is investing in include enabling access to vehicles by waving at them and in-car gaming, which is poised to be a huge growth area for automakers as they approach more autonomous driving and need to give people something to do while driving.

There’s also this tidbit about BYD’s further overseas expansion plans, including giving some of its brands slightly more Western-sounding names, presumably: 

BYD also gave more details on its overseas push, with a company spokesperson confirming its Denza brand, which is 10% owned by Mercedes-Benz Group AG, will launch in Europe in the fourth quarter. BYD is planning on exporting its Yangwang and Fang Cheng Bao brands, as well.

Yangwang and Fang Cheng Bao, also luxury, [will] likely get name rebrands to better suit an international market, the spokesperson said. In December, exports accounted for around 11% of BYD’s sales.

I wonder what that number will be at the end of this year.

100%: What To Do With Elon Musk?

Congratulations! You have been named to the board of directors at Tesla. You won this great honor by clicking on an extremely suspicious link that popped into your X DMs, but your total disregard for basic online security has now paid off handsomely. Well done.

And yet, here you are, faced with the question of what to do about Musk’s compensation. Do you grant him what he wants, or tell him to take a walk (or more likely, a long ride in some kind of underground tunnel)? What’s the play here?