SWOT analysis of BMW

| December 8, 2016

This is Bayerische Motoren Werke (BMW) AG SWOT analysis. For more information on how to do a SWOT analysis please refer to our article.

Company Background

Key Facts
Name Bayerische Motoren Werke AG (BMW Group)
Founded March 7, 1916
Logo
Industries served Automotive
Motorcycles
Financial Services
Geographic areas served Worldwide (over 150 countries)
Headquarters Munich, Bavaria, Germany
Current CEO Harald Krüger
Revenue (Euros) €92.175 billion (2015) 16.4% increase over €80.401 billion (2014)
Profit (Euros) €6.396 billion (2015) 10% increase over €5.817 billion (2014)
Employees 122,244 (2015)
Main Competitors Chrysler Group LLC, Daimler AG, Ford Motor Company, General Motors Company, Honda Motor Company, Hyundai Motor Company, Nissan Motor Company, Tata Motors, Ltd., Toyota Motor Corporation, Volkswagen AG and many other automotive companies.

Bayerische Motoren Werke AG (BMW Group) is an automotive company producing and selling cars and motorcycles worldwide. The company is the largest luxury car automaker and the 12th largest automaker in the world, producing over 2.279 million cars.[1]

BMW sells its cars and motorcycles under 5 different brands: BMW, Mini, Rolls-Royce, Motorrad and Husqvarna. The company’s main markets are China, the U.S., Germany, Great Britain and France. In China alone, BMW has sold over 464,000 cars and motorcycles.

You can find more information about the business in BMW Groups' official website or Wikipedia’s article.

SWOT

BMW SWOT analysis
Strengths Weaknesses
  1. One of the most valuable automotive brands in the world
  2. Geographically diversified revenue streams
  3. Successful partnership in China
  4. Perfect engineering and excellent driving experience
  5. Competence in hybrid and electric cars
  6. Clear strategy to meet the future challenges and trends
Weaknesses
  1. Poor automotive brand portfolio with little product differentiation
  2. Increasing debt levels
Opportunities Threats
  1. Fuel prices are expected to rise in the near future
  2. Demand for autonomous vehicles
  3. Weakening euro exchange rate
  4. Timing and frequency of new model releases
Threats
  1. Increasing competition in the worldwide automotive market
  2. Increasing government regulations may raise the costs
  3. U.S. automotive market is poised to slow down or even decline

Strengths

1. One of the most valuable automotive brands in the world

According to Interbrand, BMW brand is the third most valuable automotive brand in the world, worth US$41.5 billion.[2] Forbes places BMW brand as the 2nd most valuable automotive brand in the world, worth US$ 28.8 billion.[3] Only Toyota’s and Mercedes-Benz' brands can compete with BMW in both lists.

Brand value is closely related to brand recognition and its positive reputation, which means that BMW brand is one of the most recognizable automotive brands. BWM has a reputation of producing perfectly engineered vehicles, which offer luxury driving that few other brands can offer.

High brand recognition helps the company to introduce related product and services to the market faster and without huge advertising expenditure.

2. Geographically diversified revenue streams

Unlike most of its competitors, BMW does not rely on its home market or a few other major markets to generate most of its revenue. BMW’s main market in terms of revenue and volume of vehicles sold is China, where the company sold over 464,000 units of vehicles and motorcycles and earned €15,856 billion in sales in 2015. Nonetheless, this accounts for only 17.2% of the total revenue.[1]

Figure 1. BMW sales volume share by country

Source: BMW financial report[1]

Figure 2. BMW’s revenue by country (in euro billions)
Country 2015
Germany 13.394
USA 18.155
China 15.856
Rest of Europe 28.617
Rest of The Americas 3.361
Group Total 92.175

Source: BMW financial report[1]

Few of the company’s rivals have such geographically diversified sales.

3. Successful partnership in China

China is the largest automotive market with 25.1 million units sold in 2015 alone. It is also the largest BMW’s automotive market. Every automaker strives to dominate Chinese automotive market but few succeed.

BMW’s success in China lies in its strong partnership with a local Chinese automotive company Brilliance Auto Group (officially HuaChen Group Auto Holding Co., Ltd.). BMW and Brilliance Auto Group have formed a joint venture called BMW Brilliance Automotive Ltd., which manufactures and sells BMW, Mini and Rolls-Royce cars.[1]

Strong partnership in China ensures BMW’s success in the market and future sales growth.

4. Perfect engineering and excellent driving experience

BMW mainly competes in the luxury car segment with rivals such as Mercedes-Benz, Lexus and Audi. The company praises its cars on their state-of-the-art technologies, exclusive luxury and exceptional comfort, supported by the quality build.

Few of the company’s rivals can offer such price/performance ratio as BMW.

5. Competence in hybrid and electric cars

BMW released its first electric vehicle BMW i3 in 2013. Over the next two years, BMW i3 had become the 3rd best-selling electric vehicle in the world.[4] In 2014, BMW launched a new i8 plug-in hybrid vehicle, venturing into plug-in hybrid vehicles (PHV) market.

In 2016, BMW introduced an additional four PHVs to its fleet and now offers one purely electric vehicle and 5 PHVs. The company has already sold 100,000 units of these vehicles and due to their success is planning to introduce more purely electric vehicles by 2020.

Although, BMW cannot compete with Toyota in hybrid vehicle segment its competence in making hybrid and electric vehicles is stronger than most of its rivals.

6. Clear strategy to meet the future challenges and trends

BMW has a clear strategy on how to meet the future challenges that it may face. The company’s strategy plan “Strategy Number One” provides clear directions of what the company should pursue and where to focus its efforts. The plan emphasizes that BMW should concentrate on premium mobility, which is further divided into 3 goals:

  • E-mobility. BMW should focus on hybrid and electric vehicles as the future technology powering its vehicles.
  • Autonomous driving. The company has a clear vision of how to transition to autonomous cars.

    Figure 3. BMW’s autonomous car plan

    Source: BMW Group investor presentation[5]

  • Mobility services. BMW’s plan is to leverage the potential of digitalization and connectivity.

The company’s readiness to meet the future challenges puts it at a clear advantage against its rivals.

Weaknesses

1. Poor automotive brand portfolio with little product differentiation

BMW’s automotive brand portfolio only consists of 3 different brands: BMW, Mini and Rolls-Royce. In 2015, the company sold only 338,466 models of its MINI cars and 3,785 models of its Rolls-Royce cars out of its total 2,247,485 vehicles sold. Considering that automotive sales of €85,536 billion make up 92.8% of the total BMW Group’s revenue and the majority of those automotive sales are just BMW cars, the company is heavily dependent on its luxury BMW cars’ sales.

In addition, the company’s product portfolio is mainly focused on cars, to be more exact, small to medium luxury vehicles and a line of crossovers. The company does not offer any pickup trucks, light and heavy commercial vehicles or busses in order to differentiate its offerings. The company does not own any automotive brand targeted to lower income or middle income consumer, who can’t afford luxury cars.

Poor automotive brand portfolio with little product differentiation leaves BMW at a disadvantage when the economic conditions worsen, consumers’ tastes change or the brand receives lots of negative publicity.

2. Increasing debt levels

BMW’s debt is the highest in the company’s history. It has been growing significantly over the last five years and reached nearly €130 billion in 2015.

Figure 4. BMW’s debt in 2012-2015 (debt in € billions)
2012 2013 2014 2015
Debt 101.229 102.777 117.366 129.410
Growth over previous year - 1.5% 14.2% 10.3%

Source: BMW financial report[1]

BMW’s biggest debt increases appeared in 2014 and 2015, mainly due to the large investments in the technology related to electric vehicles and automated driving.

Huge debt levels limit the company’s ability to invest huge amounts in R&D or venture in costly acquisitions that would allow faster growth.

Opportunities

1. Fuel prices are expected to rise in the near future

Fuel prices have been low for the last few years and are expected to rise in the near future due to the changes in the supply. Low fuel prices have increased the demand for large vehicles such as pickup trucks and SUVs. Many companies, including General Motors, Ford, Chrysler have benefited from the low fuel prices, because of their strong SUVs and pickup trucks offerings.

On the other hand, BMW didn’t invest much into growing its line of light trucks and has opted to compete in the smaller vehicle range. The demand for small vehicles always rises when the fuel prices are high.

2. Demand for autonomous vehicles

Currently, nearly 33 companies are working on autonomous vehicles.[5] Few of them, including Google, Ford and Tesla, are testing their autonomous vehicles on the roads and none of them are selling these cars to the general public. It is hard to estimate the exact demand or the market value (it is expected to be worth US$45 billion by 2025) for the autonomous vehicles, but according to the efforts of all the major automakers, it seems that autonomous vehicles is the next ‘big thing’ for the industry.

The company should speed up the development of autonomous vehicle technology and acquire the required skills as soon as possible if it does not want to stay behind Google, Ford or Tesla in this area.

3. Weakening euro exchange rate

The majority of BMW’s revenue come from Eurozone countries, where euro is the only currency. Therefore, the changes in euro exchange rate have little effect on the company’s revenue and profits. Nevertheless, exchange rates still affect exports to other countries and this is where weak euro exchange rate against other currencies, benefits the company.

Lower euro exchange rate against the U.S. dollar makes BMW’s vehicles cheaper for the U.S. citizens. The company could push its exports to the U.S. or other countries for as long as the euro exchange rate is low against other currencies.

4. Timing and frequency of new model releases

The market share of the automotive companies is significantly impacted by the timing and frequency of new model releases. Historically, new models have tended to have major upgrades every 4 or 5 years with only minor modifications in between. However, due to the rising consumer expectations in relation to in-car technology and the competitive nature of the industry, there is an argument to release upgraded models more frequently. BMW is well-positioned to be able to do this.

Threats

1. Increasing competition in the worldwide automotive market

Despite the fact that the worldwide automotive market is already highly competitive, the competition is further increasing due to the excess of vehicle production, rapid technological changes, new entrants and saturation of the largest markets.

New companies, such as Tesla with its electric cars will make it very hard for BMW to compete in the electric cars segment. In addition, Google, which tries to build self-driving cars is also threatening the traditional automotive industry. The competition is further fueled by the fact that the global automotive production capacity far exceeds the demand. In 2015, there was an estimated global excess production capacity of 31 million units.[6]

2. Increasing government regulations may raise the costs

Many governments around the world are committed to reducing the greenhouse gas emissions and are encouraging fuel efficiency initiatives. There is always a risk that such environmental initiatives may increase production costs for the car manufacturers and that these costs won’t be able to be recouped in such a highly competitive and price-sensitive market.

3. U.S. automotive market is poised to slow down or even decline

In the U.S., 2015 and 2016 were the best years for automotive industry since 2007. New vehicle sales have increased on average by nearly 6% each year.[5] Every automaker competing in the U.S. was able to grow their sales even when losing market share. General Motors also benefited from that.

Nonetheless, automotive market growth in the U.S. is slowing down. According to Ford and General Motors, new vehicle sales will slow down or even decline over the next few years due to the oversaturated market.[7]

Sources

  1. BMW Group (2016). Annual Report 2016. Available at: https://www.bmwgroup.com/content/dam/bmw-group-websites/bmwgroup_com/ir/downloads/en/2015/12784_GB_2015_engl_Finanzbericht_Online.pdf Accessed 7th December, 2016
  2. Interbrand (2016) Best Global Brands 2016. Available at: http://interbrand.com/best-brands/best-global-brands/2016/ranking/ Accessed 7th December, 2016
  3. Forbes (2016). The World’s Most Valuable Brands. Available at: http://www.forbes.com/powerful-brands/list/ Accessed 7th December, 2016
  4. BMW Group (2016). The BMW i3 Turns Two. Available at: https://www.press.bmwgroup.com/global/article/detail/T0242822EN/the-bmw-i3-turns-two-time-for-an-interim-review-in-germany-the-bmw-i3-has-been-the-best-selling Accessed 7th December, 2016
  5. CB Insights (2016). 33 Corporations Working On Autonomous Vehicles. Available at: https://www.cbinsights.com/blog/autonomous-driverless-vehicles-corporations-list/ Accessed 7th December, 2016
  6. Jurevicius, O. (2016). Ford SWOT analysis 2016. Available at: https://www.strategicmanagementinsight.com/swot-analyses/ford-swot-analysis.html Accessed 7th December, 2016
  7. Pugliano, B. (2016). August US auto sales down; carmakers say industry has peaked. Available at: http://www.cnbc.com/2016/09/01/august-us-auto-sales-drop-for-gm-ford-as-expected.html Accessed 7th December, 2016

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