The E46 M3 is powered by the S54 straight-six engine and is available in a traditional manual or SMG-II transmission. The SMG-II 6-speed automated manual transmission, (based on the Getrag 420G) uses an electrohydraulically actuated clutch and gearshifts selected via the gear knob or paddles mounted on the steering wheel. It is a strong performer on the track but is not typically favoured on the street due to delayed changes on request and harsh shifts in low speed traffic.
The S54 puts out 252 kW (338 hp) at 7,900 rpm, with 365 N⋅m (269 lb⋅ft) at 4,900 rpm, and redlines at 8,000 rpm. A famous characteristic of most M-models, the S54 has an individual throttle bodies for each cylinder, operated with drive by wire for the first time in the E46.