BMW's Small Sedan Sales Drop Dramatically As Tesla Model 3 Rises

It's no secret that Tesla's Model 3 compact sports/luxury sedan was benchmarked against the BMW 3 Series sedan. Nor is it any secret that Tesla had hoped to steal customers from BMW in substantial numbers. With two months of solid deliveries in the U.S. market now under its belt for the Model 3, it is pretty hard to ignore the numbers that seem to prove Tesla has succeded. Tesla's VP of sales told investors that the BMW 3 Series is one of the top non-Tesla models being traded in for the Model 3. Clearly, there is acceptance by the former BMW owners that the Model 3 is an equivalent or better vehicle.

Tesla's Model 3 sales in the U.S. remain way below Tesla's original projections. Elon Musk tweeted that he expected the company to be selling more than 20,000 per month in December of last year, something it has yet to do. However, with sales of the Model 3 over the past two months averaging about 15K units per month delivered to customers, there is no longer any debate which model defines the compact sports sedan segment.

Although sedans are declining in sales and crossovers of all sizes are rising, BMW's July and August declines for its 2 Series (slightly smaller than the Model 3), 3 Series (almost identical in size) and 4 Series (derivatives of the 3 Series) are shocking. Here are the declines:

July BMW Sales (N. America)
2 Series down 21%, about 400 units
3 Series down 40% about 2,700 units
4 Series up 31%, about 700 cars

August BMW Sales (N. America)
2 Series down 43%, Less than 600 cars sold
3 Series down 30% Less than 3,000 cars sold
4 Series down 43%, Less than 2,000 cars sold

Looking at BMW's i3 small electric vehicle sales are also quite eye-opening. The i3 is a goofy city car, but it is similar in some ways to the Tesla Model 3. Its price overlaps the Model 3 for sure. BMW's i3 sales dropped by 60% in July and again dropped in August by about 17%. To its credit, BMW managed to move 418 i3 vehicles in August. Who the heck buys an i3 with the Model 3 now becoming available is hard to imagine. We suspect crazy hard to resist lease deals and customers who need a car right now.

Based on our close watch of the Prius, we will not say that its drops in recent months are Tesla Model 3 driven. Clearly, there is a case to be made for that, but the Prius is a small affordable car that has been declining in sales steadily long before the Model 3 came on the scene in any meaningful way. Look closely at Toyota's robust and long-term steady monthly sales of the RAV4 Hybrid and it is hard to say that is not where most Prius sales have gone.

Congratulations to Tesla for achieving one of its main objectives are in order. We don't hesitate to point out hard truths about Tesla's struggles, but when it comes to kicking the BMW 3 Series to the curb, Tesla has effectively done what Mercedes Benz, Infiniti, Acura, Lexus, and others failed to do despite literally decades of serious effort.

We should also congratulate BMW. Despite finally having someone move their cheese, the folks at BMW saw it coming from a mile away and have been preparing for years for this day. BMW's sales are up this month and its crossovers are selling as fast as their American workers can build them. About 7% of BMW's cars sold in the month of August were electrified. It's not out of the game by any means.