What thus emerged was a concept unveiled at the Detroit Auto Show in 2003. Dubbed the xActivity, BMW previewed to the public for the first time what a smaller SAV based on a 3 Series platform would look like. The concept had no windows, for the most part no roof, and a sleek futuristic interior. Only the basic shape of the car would emerge as the BMW X3.
Just as BMW used many parts from the E39 5 Series parts bin in the making of the X5, the same occurred in the X3's development, whereby BMW engineers reused 3 Series parts. In fact, complete sets of parts came straight out of the E46 330xi unchanged in the X3 (e.g. rear suspension).
Austrian automotive contractor Magna Steyr of Graz, Austria performed additional development work and has been contracted to manufacture all first-generation X3s.
Main article: BMW xDrive
When the BMW X3 premiered in late 2003, BMW announced that it would be using a new 4 wheel drive system to power it and its bigger brother - The (refreshed) X5. The two key things about xDrive are, first, it being one of the first technologies used to intervene before the driver was ever aware that the car could be unstable, and second, it being transparent (i.e. unknown) to the driver.
The BMW X3 was initially criticized for its harsh ride, an austere, minimalist interior that relied heavily on obviously plastic components, and limited off-road usage, through its heavily road-biased chassis set-up. Critics also felt the car was overpriced; a basic 2.5i, which lacked cruise control or automatic headlights and had vinyl upholstery, exceeded $30,000 in the U.S. (Vinyl has never been offered in other markets). BMW sought to rectify these complaints in 2005, with various upgrades (see below). The X3 also disappointed some BMW purists by not being assembled at a BMW factory; instead, the car's production was outsourced to Magna Steyr, based in Graz, Austria. However, Magna Steyr has won numerous awards for quality and has been the highest rated car assembly factory in Europe. It has also manufactured - amongst others - European market Chrysler/Jeep products, the 4-Matic Mercedes E Class derivatives, and even Saab 9-3 convertibles.