BMW's self-driving concept car. BMW BMW will test its self-driving cars in Munich next year in an effort to keep up with ride-hailing firms like Uber, which have spent billions on pay-per-use personal transport.

The German carmaker will have about 40 vehicles with self-driving functions in Munich's inner city and then expand the project to other cities, BMW executives said on Friday.

"There is a trained test driver behind the wheel of every car," Klaus Buettner, BMW's Vice President in charge of Autonomous Driving said.

Uber's rapid growth has prompted BMW to consider how autonomous vehicles may help them accelerate their own push into pay-per-use transport.

Uber launched a pilot program in Pittsburgh, Pennsylvania in September, allowing select Uber users to hail the company's self-driving cars.

A self-driving Uber. Uber

Uber, along with companies like Lyft and Juno, have shaken up the traditional auto industry business model of selling cars by offering customers an alternative to vehicle ownership through smartphone-based ride-hailing services.

Now traditional car companies are expanding their own ride-hailing schemes, while investing in self-driving technology.

"Ride hailing is nothing more than manual autonomous driving," Tony Douglas, Head of Strategy for BMW's mobility services said. "Once you dispense with the driver you have a license to print money."

BMW has already made significant progress expanding into the market for car sharing by introducing pay-by-the-minute services like ReachNow in Seattle, Douglas said.

"We had 14,000 people sign up in 4 days, in a market already served by Zipcar, Uber, Lyft and Car2go," Douglas said.

"Someone else spent the money to educate the market and then we came in with a cool product. We will not be the largest, but we can be the coolest," Douglas said.

BMW plans to use not just its expertise making premium vehicles, but also its ability to manufacture, own and manage fleets of premium vehicles.

"Uber and Lyft do not operate their own fleets of cars. Owning the fleet means you can make offers that Lyft and others are unable to provide. For example providing car sharing for a specific community only," BMW's Chief Executive Harald Krueger said.

BMW also plans to release its self-driving vehicles in China in 2021. The company is also committed to releasing an all-electric car with autonomous capabilities in 2021 as part of its Project iNext. By 2025, BMW said that vehicle will be fully autonomous.

BMW's announcement comes about a week after Ford said it will begin testing its self-driving vehicles in European companies in 2017, raising its current fleet of 30 self-driving vehicles to about 100. Ford also said it will release an autonomous taxi fleet for public use in at least one US city by 2021.

(Editing by Alexander Smith; Reporting by Edward Taylor; Danielle Muoio contributed to this report.)