BMW growth and future success depends on electric and autonomous cars, according to CEO Harald Krueger. BMW is close to peak economies of scale in its other niches. How BMW exploits its advantage in autonomous vehicles and amps up its electric car plans will be the hallmark of Krueger’s tenure as CEO.
BMW surpassed 2 million sales last year as a premium specialist. BMW’s competitors—Toyota, Volkswagen and General Motors—sold 10 million vehicles during the same period. Peak economies of scale may be close for BMW, as the company has filled most conceivable niches.
BMW has huge cash reserves. How it uses those cash reserves is open to debate. Some think it should acquire another car make—another premium manufacturer or, perhaps, a mass manufacturer. Alfa Romeo or Ferrari are potential acquisition targets. Based on BMW’s experience taking over Britain’s Rover, however, this doesn’t seem likely.
Finance types think BMW could return cash to shareholders with dividends, or buy back shares. Or, more esoterically, they could shore up the underfunded pension, like Daimler did in mid-December injecting €1 billion ($1.1 billion) into the fund.
Two Pillars OF BMW Growth
New CEO Harald Krueger sees things differently, though. He sees two big pillars of growth for BMW as electro-mobility and autonomous driving.
BMW offers two electric models: the i3 electric city car and the i8 plug-in hybrid sports car. There are even teaser pictures of a BMW i5, an all-electric SUV to match the Tesla Model X. “They don’t have a very large SUV and that might be an opportunity in the U.S. market,” says Richard Hilgert, auto analyst with investment researcher Morningstar.
The electric car will get more interesting for BMW. It hopes the German government and others will push for wider acceptance of electric vehicles (with subsidies).
Electric car sales will start to accelerate between 2017 and 2018 with global sales reaching perhaps to three per cent by 2020, predicts Professor Stefan Bratzel of the Center of Automotive Management in Bergisch Gladbach, Germany. To put that into perspective, that means approximately 540,000 sales in 2020.
Not everyone agrees with Krueger, however. “Electric cars aren’t at the point yet for the consumer to buy on a large scale. After all, the market is heavily incentivized by governments around the world and it is difficult to make money,” Hilgert says.
BMW Growth In Autonomous Driving
Autonomous driving — the second pillar of growth for BMW — should bring more qualitative growth. BMW is already among the leaders in autonomous car development, according to a study by Navigant Research. BMW ranks third behind Daimler and Audi in the research and just ahead of GM. Interestingly, the research firm declared that Tesla is more in the middle of the pack for autonomous vehicle development.
The study only considered OEMs, not technology companies including Google, which already has tested its self-driving electric cars on the road.
The analysis looked at the strategy and execution of autonomous vehicle technology for 18 automakers. The OEMs were rated on 12 criteria: vision, go-to market strategy, partnerships, production strategy, technology, geographic reach, sales, marketing and distribution, product capability, product quality and reliability, product portfolio, pricing and company commitment. Scores were calculated on how established and comprehensive a company’s advanced driver assistance systems (ADAS) are deployed.
Here are the complete findings of the Navigant study:
Leaders—Strategy and execution scores greater than 75
- General Motors
Contenders—Companies that are capable of taking the lead in the near future
Challengers—companies that could challenge for leadership in the near future
- Jaguar Land Rover
Contenders and Challengers—Companies that need to make significant changes to lead in the autonomous vehicle market.
- Fiat Chrysler
- PSA Peugeot Citroen
Note: Ford recently announced a partnership with Google that could move it into the Leader Category.
BI Intelligence expects there will be nearly 10 million cars with features that allow it to accelerate, brake, and steer a car’s course with limited or no driver interaction by 2020.
Fortunately for BMW, competition in the autonomous driving market begins in the premium car market and filters down. BI Intelligence believes the barriers to self-driving cars remain significant. Costs need to come down and regulations need to be clarified around certain self-driving car features before the vehicles fully take off among mainstream consumers.
BMW Growth May Be Impacted By Persistent Rumors
What makes matters more exciting for BMW are persistent rumors BMW and Apple are hooking up on an electric car. Apple wanted BMW for its body — more specifically, the carbon fiber body of the BMW i3 electric vehicle. Talks cut off in 2015 because Apple was hesitant to commit to a relationship. Apple thinks it could build a car on its own from scratch, according to those rumors. Now, there are more reports that Apple and BMW might start up talks again next year.
Apple CEO Tim Cook and other managers are said to have visited BMW’s i3 factory and came back blown away by BMW’s production lines, including BMW’s extensive use of carbon fiber.
What makes this relationship intriguing to conspiracy theorists is financial. Better, and longer-range EVs will be out by 2020, around the time Apple might want to be in the car business. Entering the market so late puts Apple at a significant disadvantage. Why build a car manufacturing company from scratch when you could buy an existing one instead?
Apple’s market capitalization (what the company is worth based on the total value of all shares of Apple stock) is $698 billion while BMW’s is $59 billion — a 12-1 ratio. If Apple needs a car company, it just buys BMW.
The Quandt family owns 47% of BMW’s shares, which could make BMW immune to takeover unless family members wishing to cash out their shares break from the rest of the group.
In the end, BMW growth and success potential rests on the money managers. Will it use its huge cash reserves to purchase an existing carmaker, electric vehicle technology or an autonomous vehicle maker? Or, will it partner, merge or be acquired by Apple?