Ever wondered what BMW stands for? Bayerische Motoren Werke GMBH, which started its life as an aircraft engine builder with an aircraft engine called the BMW 801. This heritage is evident in the quad-propeller reference and blue and white sky in its logo. Now the company is one of the largest vehicle manufacturers in the world, leading the industry in innovation, design and driveability.
In the below article, we take a look at the Strengths, Weaknesses, Opportunities and Threats of this luxury car brand.
1. The BMW brand name is one of the strongest vehicle manufacturer names in the world.
BMW created a name for itself that is synonymous with reliability and build quality. This has been evident throughout its lifetime, with a strong heritage of luxury and performance. These brand values have ensured that BMW is continually regarded as a premium car brand, associated with luxury, safety, reliability and status. The brand encompasses BMW, MINI and Rolls Royce, as well as BMW Motoraad, its successful motorcycle department.
The brand value of the BMW group is worth $20.52 billion. (Market.US)
2. BMW maintains a balanced, geographically diverse revenue base.
Although Europe is BMW’s home market, its greatest markets are in the East, with the Chinese market being BMW’s greatest sales region. BMW enjoys a competitive market position in both Europe and North America. There is certainly room for growth in the African and South American regions.
China accounts for 33% of BMW’s unit sales. (Statista)
3. The BMW brand is synonymous with high-quality product offerings.
Due to BMW’s strict adherence to its core brand values of quality and performance, brand loyalty among BMW owners is exceptionally strong. BMW maintains an exceptionally strong fanbase throughout the world, which is reinforced by its performance in motorsport competitions, as well as the longevity of its products on the road.
BMW sold 2.17 million units, the second-highest sales volume for a luxury car brand. (Statista)
4. BMW has been actively involved in green technology for over thirty years.
BMW has been experimenting with electric vehicles since the 1970s, after the major fuel shortage of the last century. This running start allowed BMW to be one of the first to market with its electric vehicle and hybrid range, namely the i3 and i8 models. Going forward, this existing momentum in environmentally friendly offerings will ensure BMW remains a strong contender.
BMW sold 42,249 of its electric “I” units. (Market.US)
5. BMW has production facilities in countries all over the world to ensure regional penetration.
As an efficient way of penetrating markets, gaining political support in various regions, as well as managing the impact and risk of trade tariffs, BMW has established manufacturing facilities across the world. These facilities enable governments to increase their exports, as well as create jobs for their local labor forces.
BMW operates 31 production and assembly facilities in 15 countries worldwide. (BMW)
6. BMW continues to improve its vehicles with one of the industry’s highest spending on research and development.
To ensure that its brand remains at the top of its game, BMW’s spending on research and development is one of the highest in the industry. This enables a level of innovation in BMW’s products that is industry-beating, allowing the company a level of competitive advantage not only through its products, but also through efficiencies in its production capabilities and operations.
BMW spends $7.76 million on research and development. (BMW Group)
1. Negative publicity has tarnished the BMW brand.
BMW was very quick to reduce its workforce, cut salaries and apply for financial assistance from the German government during the COVID-19 pandemic. However, it posted a $1.8 billion dividend notice for the year 2020. This was seen as greedy during a time of international duress. Furthermore, BMW has been involved in fraudulent emission claims in a number of markets.
BMW paid $1.8 billion in dividends in 2020, despite austerity measures placed on its staff and bailout requests on the German government. (Bloomberg L.P.)
2. BMW has historically high debt levels, which exposes the company to financial risk.
During times of economic downturn, luxury items such as the products of BMW are the first to feel a downturn in their sales volumes. When a large part of your cost base is servicing debt levels, a downturn can have a devastating effect on profitability. BMW maintains a high level of debt in its balance sheet, which exposes the company to financial risk in the case of a continued economic downturn.
BMW posted its first quarterly loss in over a decade in 2020, a loss of $787 million. (Crain Communications, Inc.)
3. Recalls have repeatedly hurt the image of a brand.
Each time a vehicle manufacturing facility issues a recall on a model, the reputation of the company is damaged. Recalls happen when faulty aspects of the car hamper the safe operation of a vehicle under normal driving conditions. The effects of these issues can lead to fatal car crashes, which are not only terrible events in themselves, but also expose the company to great legal risk.
BMW was the second most recalled brand between the years 2014 and 2019. (NerdWallet)
4. A number of lawsuits have involved BMW, its safety levels and manufacturing standards.
Faulty vehicle parts, as well as manufacturing defects that end up in the finished product of a vehicle, can lead to onerous legal battles which cost the company, both in legal fees and reputational damage. BMW has been exposed to a number of class-action lawsuits and claims due to faulty pasts or defects resulting from its manufacturing processes.
BMW recently settled a $92 million nationwide, class-action lawsuit related to faulty timing belts. (ALM Media Properties, LLC)
5. BMW’s product exposure is limited to only three vehicle brands.
While its competitors, such as Volkswagen, own a number of brands (VW owns 12), which expose the parent company to a broad range of market segments and geographies, BMW only owns three vehicle brands. These brands are in the premium and ultra-premium market segments. This detracts from its product diversification and exposes the company to segment-specific market shocks, which would usually be shared across a diverse range of product offerings.
87% of BMW group’s sales are directly related to the sale of BMW vehicles, with the balance coming from MINI and Rolls Royce. (Impressum)
6. The brand value of BMW is being diluted with the sale of cheaper BMW models.
BMW’s strategy of not diversifying into other car brands has resulted in the dilution of its brand values by the introduction of cheaper models within its own brands. Models like the Mini One, the BMW X1 and other brands are targeting a segment that is more efficiently targeted by cheaper car brands. This potentially damages the brand value of the parent company. BMW should instead diversify its offerings through brand-specific silos which target identified segments.
BMW sold 59,941 of its X3 models in the United States in 2020. (Newswire)
1. Younger market participants are looking for more creative ways of vehicle ownership.
The image of car ownership is changing with the times. Younger generations want more flexibility in their economic lifetimes. This has resulted in the genesis of the Shared Economy and the leasing of assets. Vehicle manufacturers are having to alter their offerings to address these alternate modes of asset ownership, with flexibility and value being core objectives of this younger set of buyers.
70% of Generation Z say that they are less loyal to car brands than their predeceasing generations. (LBB Online)
2. Emerging markets continue to offer greater options for growth.
While China remains BMW’s strongest market in terms of sales, there is definitely growth potential in the Sub-Saharan and South American markets. BMW has historically focused on its home market of Europe, the North American market, and China. With the growing middle class in Africa and South America, there will be an increase in demand for premium automotive manufacturers.
Sales of BMW vehicles surged 31% in China, while BMW Group Global sales were down 12.5%. (The Financial Times Limited 2021)
3. While BMW offers various electric vehicles, the eco-mobility market offers continued opportunities.
Shared mobility, eco-mobility and other environmentally focused mobility solutions are an area where BMW could integrate into. Its competitors are diversifying into ridesharing companies with electric vehicles, such as the Mercedes ViaVan project, as well as direct public sector mobility programs for environmental mobility solutions. Environmentally focused mobility solutions will be a segment that continues to show strong growth.
Globally, BMW will have 25 fully electric models available as of 2023. (Automotive Fleet Magazine)
4. BMW can focus the marketing of its products toward fleet sales and corporate demand.
Corporate demand for vehicles remains high, especially with the rise of eCommerce and online retailing. This segment can offer BMW new markets to approach with its offerings. The company already has a strong presence in most first-world countries where corporates are purchasing fleet vehicles. Furthermore, BMW can attract corporates who are looking for company vehicles for their executives and managers without having to develop new product offerings.
BMW’s fleet business is worth $16.86 billion. (BMW Group)
5. Although not quite ready yet, self-driving vehicles are becoming a reality.
The BMW Group has approached partnerships with the goal of entering the self-driving, autonomous vehicle space. However, these partnerships have produced mixed results. There will be an opportunity for a first mover to take advantage of the autonomous vehicle space. BMW, with its research and innovation, and its technology-forward approach to manufacturing, is in a perfect space to be a first mover in this field.
It is estimated that 33 million automatic vehicles will enter the market by 2040. (PolicyAdvice.net)
6. BMW can increase its market presence and rate of innovation through strategic partnerships.
By offering its existing manufacturing capabilities, market strength, and strength of its balance sheet, BMW is a powerful partner to have on board. With the increasing rate of technological change, BMW can pick and choose partnerships that expose the brand to new markets, new technologies, and innovative businesses and practices in a cost-effective and efficient manner.
Through a recent strategic partnership with Daimler, the Joint Venture has exposure to a combined 60 million potential clients, with the joint venture committing $1.2 billion in capital. (Daimler AG)
1. As BMW is a luxury brand, any economic downturn will affect BMW more than it will affect vehicles made for mass-market consumers.
BMW has focused its market in the premium and ultra-premium segments through its ownership of MINI and Rolls Royce. Should there be any impacts on these segments through various market forces, it will negatively impact a large part of BMW’s current product offerings. BMW should diversify its offerings across various market segments to mitigate the associated risks.
BMW lost $800 million during the 2020 recession. (Reuters)
2. BMW’s research and development, as well as model-specific manufacturing process, means that it has high manufacturing costs.
The premium nature of the BMW brand requires a costly manufacturing process and the various vehicles do not share many parts with each other. The result is that BMW’s inventory and manufacturing costs are higher than that of its competitors.
BMW invested $1.3 billion in setting up factories for new vehicles. (MarketWatch, Inc.)
3. Emission standards and safety regulations continue to add costs to the development of new models.
In order to participate in most of the markets that BMW operates in, BMW is required to adhere to stringent local emissions and safety standards. These standards vary across differing regions. However, BMW ensures compliance with all of its models to the strictest standards. BMW is therefore exposed to changes of regulations as and when they happen. These can have costly implications for BMW’s research and development team, as well as manufacturing systems.
Emission standards have tightened to 5.3 ounces per mile of CO2 for new vehicles. (Reuters)
4. Trade tariffs for the import and export of vehicles are a threat.
Although BMW has mitigated this risk by setting up manufacturing facilities for its vehicles in different regions across the world, they inevitably end up exporting vehicles into regions where tariffs are applied. These tariffs are designed to protect local industries. However, they usually end up being reciprocal in nature, meaning that one government will react to the actions of another so that local industry is affected in both nations.
The trade war between the United States and the Peoples Republic of China cost BMW $363 million in tariffs. (Bloomberg)
5. The market for new vehicles is a mature market with lots of strong competition.
Most major vehicle manufacturers offer a premium model within their product lineup, allowing the manufacture some exposure to the luxury segment. This greatly impacts BMW’s market share, as BMW only operates within the premium space. With the growing middle class in most economies around the world, this premium segment is becoming increasingly competitive for companies.
Volkswagen generated $270.35 billion in revenue, which was $150.28 billion more than BMW generated in the same period. (Statista)
6. The world is seeing a change in the demographics of car ownership, with full ownership becoming less important to younger generations.
Car companies that embrace varying modes of car ownership are seeing an increase in sales from younger generations who are seeking greater flexibility within their lives. Vehicle manufacturers will need to ensure that their vehicles fit the diverse needs of younger generations. The standard practice of brand loyalty, vehicle finance and car ownership is being replaced by ease of ownership and flexibility.
BMW and Daimler operate 20,000 vehicles in 30 international cities through their shared mobility platform. (Manufacturing Global)
The rate of change in the automobile market is increasing on a yearly basis, which seems to be an environment in which BMW thrives. Considering urban expansion and trends in mobility, will premium, private vehicle ownership remain important, or will market dynamics change once again?
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