Intrerresting start, with a bit of mis-information here and there. As an owner of an active 700CS perhaps I can add to the thread.
The BMW 700 was designed by Micholotti (who designed the Triumph Herald) and put on sale and shown at the 1959 Geneva Motor Show. It was an immediate success. the big question is 'WHY'?
So to history: - As the standard Isetta 250/300 production progressed in post war Germany, the company realised it needed a replacement and a more family friendly car with more space than the standard Isetta. BMW therefore designed and put into production in I believe 1957, the BMW 600, as a a 'super' Isetta. This used a modified version of the BMW R69 Motorcycle engine which had been developed to power a portable generator for the German/Nato Forces. The 600 used a 'Ladder' type Chassis, a custom transaxle similar to a small VW unit, an a beefed up version of the Isettas 'dubonnet' front suspension. However, it retained the Isetta's front opening door, but added a side door for access to properly sized rear seats.
The 600 was not particularly well received by the public since they were unsure if the car was a 'proper' car or a 'Bubble Car'. Sales were slow and I believe that only about 22000 were built in about 2 years of production.
At this point BMW's classic, and expensive, coach built cars were significanly out of date, and were no longer selling well to the public. The Isetta - a Design Liscenced from ISO, although built in considerable numbers, was really an 'at cost' sale and returned no profit to the company for re-investment in either plant or designs. Thus by the late 50's Glas (manufacturers of the Goggomobil) were approached to see if they were interested in taking over BMW! (consider David taking over Golliath!). Glas declined, but by the mid 60 (I believe 1964) were themselves taken over by BMW, when Glas failed to increase sales of their larger car designes, and Herr Glas the founder decied it was time to retire. (an interesting note here is that one of the quintesential BMW Classics (pre-New Classe) was the the BMW 1500/1600 Coupe - actually a Glas Design!).
So, at the dawn of 1959, BMW was near backrupt. Its classic designs would not sell, Isetta sales were starting to decline, and the BMW 600 had failed to capture the Public imagination. Action was needed! At this point the main Viennese agent of BMW took the chassis and running gear of a '600' to Michilotti, with the instruction 'what can you design with this'! The result was the short wheelbase BMW 700 Coupe and Saloon. The coupe actually being the first to market at the end of 1959. To be fair, the separate Chassis/Body Desing of the original Michilotti prototypes were scrapped during tooling (actually paid for by the Bavarian government!), and the BMW became the first Monocoque desing that BMW produced. The standard 600 engine was 'stretched and tuned' to give 32bhp, and the cars flew off the shelves. However, to be honest, very little of the 600 was carried forward to the 700, The Engine and Transaxle were developments from the 600, the front suspension was much more massive and stronger than the 600, the steering was by 'rack and pinion', and essentially everything else was new!
The cars were lightweights which helped with material supply, and weighed in at only 550kgs. The Coupe establishing itself as the German 'Club Racer' by the end of 1960, and available in CS guise with a tuned 42 BH twin carb engine - The CS cars handled well and were easily on a par with the much heavier BMC Mini Cooper and Cooper S. If you wanted to go racing the company would even supply a 'Sport' version to special order, which, depending on the depth of your pockets could be supplied with tuned engines, stealing form the R69 parts bin, with reputedly up to 65 BHP.
By 1962 the short wheelbase cars were felt to be a bit too small and the long wheelbase Saloons and Coupes were produced by adding about 6 inches or so to the monocoque in front of the rear swinging arms, and a further 4 inches to the rear, giving more room within the engine bay. (rumour has it it that this was to allow for a 'twin 700' i.e. a 1.4 litre boxer 4 to be fitted to the cars, and it is believed that one was actually built, but was so fast in the light weight 700 body that it outperformed the prototype 'New Classe' cars, and was hence shelved).
So, the history, as I understand it, is that by the end of the 50's BMW was more or less bankrupt, the Isetta had only provided minimal cash flow to keep the BMW Car Company alive. The coming and popularity of the BMW 700 in all of it's guises stabilised production at BMW, and provided both cash flow and some profit - reinvested in the designs of the 'New Classe' cars of the mid 60s, which lead to the BMW company we know today.