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Electric versions of the luxury brands’ bestsellers represent Europe’s boldest efforts yet to catch up with U.S. and Chinese technology

BMW and Mercedes-Benz are launching new electric SUVs to compete with Tesla’s Model Y, incorporating advanced technology.

These German SUVs feature longer ranges, faster charging and smartphone-inspired tech through partnerships with Silicon Valley firms.

Despite being more expensive, the new EVs aim to attract affluent, tech-forward consumers, especially those leaving Tesla.

Tesla’s TSLA 3.64%increase; green up pointing triangle Model Y was a game-changer in the auto industry, blowing away fusty old manufacturers to become the bestselling vehicle globally. Now the world’s top luxury car brands are fighting back.

In recent days, BMW BMW -0.18%decrease; red down pointing triangle and Mercedes-Benz have revealed new electric sport-utility vehicles—a category dominated by the Model Y—that will test car buyers’ appetite for expensive European brands at a time when technology from the U.S. and China increasingly sets the auto industry’s agenda.

The fruits of billions of dollars of investment, the SUVs will travel farther and charge faster than most of today’s electric vehicles. They will also put smartphone-inspired technology at the heart of the vehicle, allowing drivers to connect to cutting-edge artificial intelligence on the go and manufacturers to send more software updates remotely.

Mercedes took the wraps off its electric GLC in Munich’s former royal palace on Sunday, ahead of IAA Mobility, Europe’s most important car show. Two days earlier, BMW Chief Executive Oliver Zipse had showed off the company’s new iX3 at an event he called a “once-in-a-lifetime moment” for his team.

“When else do you get to reimagine a brand like BMW from the ground up?” Zipse asked the crowd.

Whereas Tesla developed much of its technology in-house, the German companies are relying on partnerships with Silicon Valley to turn their vehicles into giant smartphones on wheels.

Chip designers Nvidia and Qualcomm are helping Mercedes and BMW, respectively, to achieve a higher level of autonomous driving. The so-called virtual assistant in the new Mercedes GLC can do everything from find nearby restaurants to open the windows, thanks to AI from Alphabet’s Google and OpenAI’s ChatGPT.

The Model Y upended the auto industry when deliveries started in 2020, taking the slick EV technology introduced in Tesla’s Model 3 sedan to the increasingly popular crossover category. As Tesla increased output at new factories in Texas and Germany, the product raced past the Toyota Corolla to become the world’s top-selling nameplate in 2023.

To compete, legacy automakers rushed out rivals such as Ford’s Mustang Mach-E and Volkswagen’s ID.4. But early imitators typically failed to match the Model Y on range, cost or software smarts, leading to slow sales, particularly as EV mania faded in 2024.

Set to reach U.S. showrooms next year, the new iX3 and electric GLC are among the most comprehensive efforts yet by old-school automakers to redesign vehicles around software, rather than the mechanical engineering that made them household names.

The luxury SUV charge from Germany comes at a moment of weakness for Tesla, particularly in Europe. This year, the U.S. company’s sales have fallen by roughly one-third in the region, following CEO Elon Musk’s embrace of right-wing political activism and the retooling of its Berlin factory for an upgraded Model Y. The facelift hasn’t yet shown signs of reigniting growth.

At the equivalent of roughly $80,000 in Germany for the BMW iX3 in Europe, the German SUVs will be more expensive than the Model Y, which starts at roughly $60,000 for a long-range version. While Tesla initially recruited drivers from luxury brands, Musk has lowered prices toward mainstream levels in recent years to hit aggressive sales targets. (Mercedes hasn’t yet announced the price of its electric GLC.)

But the companies still compete for more affluent, tech-forward consumers. In the U.S., BMW is already attracting the most “Tesla defectors,” the company told investors in July.

The new iX3 and electric GLC will run for 497 and 457 miles on a single charge, respectively, based on European testing. That compares to 387 miles for the long-range Model Y, which was upgraded earlier this year. The German models also feature higher-voltage powertrains that, given the right infrastructure, should allow faster charging than the Tesla SUV.

The digital technology that makes them “smart” will gradually be rolled out to the rest of the companies’ products—including those with internal-combustion engines.

Europe’s prestigious car brands have a lot of catching up to do, according to a recent “digital automaker index” by consulting firm Gartner that put Mercedes and BMW in 13th and 14th places, respectively. That was slightly lower than last year, after two new Chinese brands, Xiaomi and Li Auto, entered the league table with high scores. Tesla was at the top of the list.

The latest EVs should improve the rankings of BMW and Mercedes, said Pedro Pacheco, the report’s author. The index tracks the digital capabilities of cars on the road, not those in development.

The iX3 debuts an entire family of vehicles that BMW calls its Neue Klasse, or new class, echoing a previous Neue Klasse that saved BMW from near-bankruptcy in the 1960s. Zipse has described the project, which cost well over €10 billion, equivalent to more than $11.7 billion, as the single biggest investment in the company’s history.

A similar project has been underway at Mercedes. Together with a small sedan launched in May, the GLC SUV marks a fresh start for Mercedes EVs after a series of flops under the “EQ” badge. For the GLC and successor models, the company is moving back to classic Mercedes designs and vehicle names.

Volkswagen Group, which owns Porsche and Audi, is lagging behind Mercedes and BMW in upgrading its digital technology. Last year it tried to accelerate by forming a joint venture with U.S. EV maker Rivian, following a similar deal with XPeng in China.

In China, the world’s largest car market and a crucial source of profit for German automakers, the new iX3 and GLC will feature digital assistants powered by local tech champions Alibaba and ByteDance, respectively. German brands have lost market share to technologically sophisticated Chinese EV makers in recent years, prompting them to adapt to local consumer tastes.

“They grew up faster than everyone thought,” BMW’s Zipse said in an interview.

Increasingly, Chinese automakers are bringing their high-tech approaches and low prices to Europe, too. This month, XPeng started shipping a new version of its long-range G6 EV, a small SUV packed with the latest digital technology, for €47,600, equivalent to roughly $55,800, in Germany.

“Have I seen anything in the Neue Klasse or the new Mercedes models that will make the Chinese scared? No,” said Steve Fowler, an industry consultant and car reviewer.

The German players remain more cautious in their approach to vehicle autonomy than Tesla or their tech-forward Chinese competitors. While driverless so-called robotaxis are at the top of Musk’s agenda at Tesla, Zipse said BMW would “rather have the impression that we’re lagging something and not one casualty.”

When it starts shipping to the U.S., the new iX3 will drive itself under supervision on highways, but automated urban driving will only be rolled out gradually.

“I have my doubts about whether German brands can regain the advantage they had in the diesel and gasoline era,” said veteran analyst Jürgen Pieper. “It was a phenomenal position they had, and I don’t see it coming back.”

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Gold prices could climb to almost $5,000 an ounce if Donald Trump’s attacks on the Federal Reserve damage the US central bank’s independence, Goldman Sachs has predicted.

Gold has rallied 35 per cent this year to more than $3,500 per troy ounce, making it one of the world’s best performing major assets, writes Emily Herbert.

Investors and central banks have piled into the precious metal as they seek protection from political uncertainty and debt worries that have sent traditional havens such as the dollar and government bonds tumbling.

Fears that the US administration could erode the independence of the world’s most important central bank have fuelled the latest flows into the metal, which is traditionally viewed as a hedge against inflation.

Investors are concerned that a politicised Fed would be more inclined to cut interest rates than would otherwise be the case, sending long-term inflation expectations higher and undermining Treasury prices. 

“A scenario where Fed independence is damaged would likely lead to higher inflation, lower stock and long-dated bond prices and an erosion of the dollar’s reserve currency status,” said Daan Struyven, co-head of global commodities research at Goldman Sachs. 

On the other hand, “gold is a store of value that doesn’t rely on institutional trust”, Struyven said.

Tax fears prompt pension withdrawals

The UK’s Autumn Budget is almost three months away, but there is already much speculation over how chancellor Rachel Reeves will plug the country’s gaping fiscal hole.

Wealth managers are worried that pensions will be targeted. The amount withdrawn in tax-free lump sums over the past financial year has surged by more than 60 per cent following an announcement that pensions would be subject to inheritance tax from April 2027, write Mary McDougall and Emma Dunkley.

But now there are fears that the government could reduce the size of the tax-free lump sum that retirees can withdraw from their pension after the age of 55. The allowance is currently set at 25 per cent up to a cap of £268,275.

A response to a freedom of information request submitted by wealth manager Evelyn Partners to the Financial Conduct Authority revealed that individuals withdrew £18.1bn in the year to end of March, up from £11.25bn the previous year. Most of the money taken out was in the second half of the year.  

The FCA’s FOI response also revealed that more than 211,000 individuals withdrew a tax-free lump sum from their pension savings, up from about 163,500 the previous year. 

“These are quite startling figures showing that the country’s pension savers have been in an unprecedented rush to take their tax-free lump sums,” said Emma Sterland, chief financial planning officer at Evelyn Partners. “You can’t help feeling that much of this increase is a slightly panicked dive into pensions sparked by uncertainty over policy change.” 

Pensions minister Torsten Bell, who has been handed a key role in preparing the Budget for chancellor Rachel Reeves, described the tax-free lump sum as “very generous, very regressive, and a strange incentive not to stagger your retirement income” in a 2019 report when he was chief executive of the Resolution Foundation think-tank.

Secretive hedge fund goes big on AI

A secretive credit hedge fund known for its bets during the 2008 financial crisis is benefiting from one of the best returns of the year, fuelled by CoreWeave, a provider of artificial intelligence infrastructure.

The hedge fund Magnetar has resurfaced on Wall Street with a canny wager on CoreWeave that has generated massive paper profits and driven its returns to about 56 per cent this year, write Amelia Pollard, Eric Platt, James Fontanella-Khan and Tabby Kinder.

The hedge fund’s gains have largely been generated by its stake in the AI data centre operator, which was worth more than $11bn in August.

Within just six months, Magnetar’s investment in CoreWeave has become by far the largest position in its portfolio, with about half of its total assets tied up in the New Jersey-based group’s equity. However, its overall investment in CoreWeave was only about $500mn, according to two people familiar with the matter.

Magnetar was co-founded in 2005 by former Citadel executive Alec Litowitz and former Glenwood Capital Partners president Ross Laser. The firm cemented its name during the financial crisis by making a windfall through short positions on subprime mortgages.

The hedge fund’s investment in CoreWeave, which has its roots in a series of loans, has multiplied in size as the data centre operator’s shares have surged more than 120 per cent since the company went public in March on the back of market enthusiasm for AI stocks.

Still, the outsized bet has caught some institutional investors off guard, particularly those that had turned to Magnetar for its expertise in debt markets. They are now looking at a fund that appears more akin to a venture capital or growth equity investor with billions of dollars staked on the fate of a single tech company.

Debt issuance this year highlights interest in assets despite troubles at Thames Water

UK infrastructure financing deals are on track to hit a record this year as investors compete to buy second-hand assets and the government signs off on new projects.

Around $38bn of debt was issued in the first eight months of this year on 90 mergers and acquisitions, refinancing and other deals, according to data from Infralogic. That rate of monthly issuance puts the UK on a path to raise at least $57bn in infrastructure borrowings by the end of the year.

The data provider said the bulk of deals are usually registered in the second half of the year, meaning that this year is set to match or surpass the record of $57bn in 2021.

The strong interest in UK infrastructure assets comes despite investor fears that the financial crisis at Thames Water — which is trying to avert renationalisation through a last-minute rescue deal by its creditors — would dampen buyer demand.

Alexander MacLeod, head of data analysis at Infralogic, said the number of deals showed that the “UK infrastructure market is robust and even the troubles at Thames haven’t shaken the appetite for the essential regulated utilities”.

He added: “The UK government has also shown its commitment to private finance, which will have reassured investors”. 

Global financial players are drawn to the UK by stable government-backed income from British households for essential infrastructure such as waste, energy, water and telecoms services as well as generous state support, which can protect investments against large losses or on risks they cannot control.

“We’ve seen a notable uptick in deal activity over the past few months, continuing the trend of vast amounts of private capital looking for deployment opportunities,” said Jessamy Gallagher, co-head of energy and real assets at law firm Freshfields.

She added that the energy transition and digital projects were popular, as well as GDP-linked assets like ports, where deals that were backed up during the pandemic are now starting to move.

The largest deal cleared so far this year was the $5.19bn sale of Electricity North West to Spanish provider Iberdrola, which already owned Scottish Power. The Glasgow-headquartered company has become the second largest distribution network operator in the UK, delivering electricity to around 12mn people across a network spanning more than 170,000km.

Rob Morson, infrastructure partner at law firm Pinsent Masons, said most deals were being driven by existing infrastructure assets reaching maturity or facing refinancing, especially those last bankrolled at ultra-low rates. He expects a “steady momentum” pick-up in deal volume for the rest of the year and into 2026.

Planning reforms aimed at getting the approval for infrastructure projects more quickly have encouraged investors, as has the decision to extend subsidies on contract for difference schemes from 15 to 20 years, which provide certainty for investors on the price they will receive for the energy produced on wind and solar farms.

The government has also given the go-ahead to new projects in carbon capture storage and water, and agreed generous terms for new investors in the Sizewell C nuclear project in Suffolk.

A pledge to press ahead with using private finance on the new Lower Thames Crossing road and tunnel and for around £50bn of water projects has also reassured investors that a pipeline of opportunities may be on its way.

Martin Bradley, head of Emea Infrastructure at Macquarie Asset Management, the UK’s largest owner of infrastructure assets, said the country had taken “positive steps” in the direction of “constructive policy decisions to maintain confidence in growth” but that the changes would need time to solidify.

The government has meanwhile earmarked £22bn for carbon capture storage projects including Italian energy provider Eni’s $4.6bn Liverpool Bay project. For now, the UK’s stance is in stark contrast to the US, where the Trump administration has deep scepticism about the renewable energy market.

Minal Patel, global head of infrastructure at Schroders Capital, said the renewables market had been a “haven for investors” in the infrastructure world.

She added: “Investors are seeing that supportive government policy and the decision to retain a national energy market across the UK provides a stable backdrop for investment.”