Bayerische Motoren Werke AG (BMW) is entering the commodities competition.
The automaker is investing in carbon fiber, and will be the first to build their own factory — spending $100 million on this endeavor.
Carbon fiber itself is 20 times more expensive than steel, the moretraditionally-used product. It costs approximately $20 per kilogram andless than a single dollar for a kilo of steel. Moreover, the material is not very malleable.
Manufacturing alone adds about 70 percent to the final price of carbon-fiber parts…
So what has motivated BMW to take on the effort in spite of such high costs for the material?
Long-term benefits and end-game profits.
Having their own factory will insure a steady supply of lightweightcarbon fiber. Revamping the production process will inevitably lead tolower production costs for the company.
The new material will result in lighter electric cars (it weighs 50%less than steel), easing the burden of the batteries — anotherproduction-cost benefit.
The demand for carbon fiber is certainly a new one, for a few reasons…
Carmakers were initially dissuaded by the drying times required whenusing carbon fiber parts, which slows town the production pace on theassembly line.
At the moment, there is only one carbon fiber producing company based in Europe: SGL Carbon SE (SGL). BMW has wisely joined a partnershipwith SGL in order to build their new plant.
In response, Daimler AG (DAI)’s Mercedes-Benz and Volkswagen AG(VOW)’s Audi are seeking the material for their own benefit. The growing allure has spiked competition, making SGL the most expensivecarbon-fiber company in the world.
According to Robert Outran, program manager for automotive chemicals at Frost & Sullivan in Oxford, England:
The capacity to produce carbon fiberisn’t that big, so manufacturers are looking to secure access…Thereare not many people who do it well. It’s a long-term strategy play.
In lieu of the growing demand trend, Frost & Sullivan predictthat carbon-fiber parts will "rise ninefold to 94.1 million by 2017",while the high costs will keep it from becoming mainstream too quickly.
JPMorgan Chase & Co. Analyst Glen Liddy, a bit unsatisfied with SGL, asserts there are plenty of other less expensive options to make efficientcars. Carbon fiber is just one option, albeit expensive.
But it makes sense. Luxury cars would be more inclined to use expensive materials, as they can afford it.
We can still commend BMW for taking a leap in the electric-car race while competitors follow suit.
BMW Ponies Up $100 million, Will Build Carbon Fiber Factory for Lighter Electric Cars originally appeared in Green Chip Stocks. Green Chip Review is a free 2x-per-week newsletter, is the firstadvisory to focus exclusively on investments in alternative andrenewable energies.