Bayerische Motoren Werke AG, or more popularly known as BMW, the largest luxury car maker in the world, expanded its order of batteries for electric cars from Samsung SDI Co.
The expansion will see BMW spend billions of euros to secure a steady supply of batteries, which are the most expensive components of electric cars. The increase in order is about 20 percent to 30 percent at minimum, which will kick in by 2016.
Samsung SDI is a subsidiary of the Samsung Group. The company's stock rose to its highest levels in over seven months after the announcement of the expanded deal with BMW was made, increasing 2.6 percent to 176,500 won.
"Expanding its supply track record will help Samsung SDI as it tries to increase its customer base," said NH Investment & Securities Co. analyst Lee Sang Hyun. "The deal will help SDI have greater presence as an electric car battery maker in the U.S. and Europe, where it is relatively less well known compared with other battery suppliers."
Samsung SDI revealed that it will be continuing to supply batteries for BMW's upcoming electric cars and hybrid vehicles for several years as the company looks to expand its foothold in the automobile industry.
BMW is launching its i3 electric vehicle and i8 plug-in hybrid car in response to the release of Tesla Motor Inc.'s Model S electric vehicle. The expanded battery order will also include the batteries for the future X5 plug-in hybrid model, said BMW purchasing chief Klaus Draeger.
"If we have hundreds of thousands of cars, then of course one would think about additional sources. But at first we need to get more economies of scale," Draeger said, referring to the growth of electric vehicle sales.
BMW's global sales of the i3 electric car reached 5,396 units for the first half, as electric cars continue to face certain challenges in terms of more consumers adopting the technology.
Draeger said that consumers are hesitant to switch to using electric or hybrid cars because of "range anxiety," as there is a widespread belief that travelling using one of these vehicles only gives a limited driving range. As the developments on the infrastructure of electric cars remain unclear, consumers are still focusing on purchasing cars with fuel cells.
Based on a report released November 2010 by J.D. Power & Associates, electric and hybrid vehicle sales are expected to increase to 5.2 million cars by 2020, which would represent 7.3 percent of all running passenger vehicles.