Image source: Dugou

Photographed at the Shanghai Auto Show in April 2023

Since announcing its withdrawal from the 'price war' in July, BMW has found itself in an awkward position, with sales orders flowing to competitors and the reemergence of the Takata airbag issue, leading to a large-scale recall.

The latest data shows that in July this year, BMW sold a total of 49,000 vehicles in China, a decrease of about 11.9% from June's 55,600 vehicles and a decrease of about 12.4% from the same period last year's 56,000 vehicles.

Furthermore, since July, BMW has been repeatedly surpassed by brands such as Mercedes-Benz and Audi in the weekly sales rankings of luxury brands released by Li Auto. From August 12th to August 18th, BMW's weekly sales were only 5,500 vehicles, slipping to sixth place, behind Tesla, Mercedes-Benz, Li Auto, Audi, and AITO.

To add insult to injury, BMW Brilliance and BMW China recently filed a recall plan for over 1.35 million vehicles due to the Takata airbag defect, affecting multiple series models starting from August 16th. While proactive recalls demonstrate corporate responsibility, such a large scale inevitably raises concerns about the significant costs involved, potentially impacting financial performance.

On one hand, BMW faces declining sales; on the other, it grapples with profitability challenges, reflecting the brand's current difficulties. Seeking both market share and profits, BMW must navigate a challenging path forward.

1

Significant order decline ●

In recent years, as the domestic automotive market has matured and consumer attitudes have evolved, sales in the luxury vehicle segment have grown substantially. When discussing luxury car brands, most consumers immediately think of Mercedes-Benz, BMW, and Audi, with BMW standing out as the long-time leader in China's luxury vehicle sales.

For example, in 2019, BMW Group sold 723,700 BMW and MINI vehicles in the Chinese market, securing the top spot in China's luxury vehicle market, with Mercedes-Benz and smart ranking second and Audi third. BMW and MINI retained their championship status in 2020 and 2021 with sales of 777,400 and 846,200 vehicles, respectively.

In 2022, although BMW Group's sales in the Chinese market declined slightly to just under 800,000 vehicles, it retained its ranking and successfully defended its title. Similarly, in 2023, BMW Group delivered 824,900 BMW and MINI vehicles to the Chinese market, continuing to lead the luxury vehicle segment.

Including MINI, BMW Group has been the annual sales champion in China's luxury vehicle market for five consecutive years. In the first six months of this year, it maintained its position as the top-selling luxury brand in the BBA segment, delivering approximately 375,900 vehicles in China.

However, BMW Group's ability to retain its championship status for the entire year is now uncertain due to a significant decline in BMW brand orders following its announcement to withdraw from the 'price war' in July. Many orders have shifted to competitors like Mercedes-Benz and Audi.

According to Autohome data, BMW sold a total of 49,000 vehicles in China in July, down from 55,600 in June, 55,200 in May, and 56,000 in the same period last year, indicating a year-on-year and month-on-month decline.

Observing Li Auto's weekly sales rankings, BMW has been surpassed by Mercedes-Benz, Audi, and Li Auto in multiple weeks since July in the Chinese luxury brand rankings.

From June 10th to June 16th, June 17th to June 23rd, and June 24th to June 30th, BMW topped the rankings with weekly sales of 13,700, 18,900, and 24,600 vehicles, respectively. However, from July 1st to July 7th, BMW's weekly sales of 11,900 vehicles were surpassed by Mercedes-Benz's 13,100 vehicles.

In the subsequent five weeks from July 15th to August 18th, BMW failed to reclaim the top spot, consistently trailing Mercedes-Benz. Even from August 12th to August 18th, BMW slipped to sixth place with weekly sales of only 5,500 vehicles, behind Mercedes-Benz, Tesla, Li Auto, Audi, and AITO.

This is not a good start, and the market has reacted strongly to BMW's decision to maintain prices. While short-term declines may be tolerable, the fear is that this could become a sustained trend, ultimately costing BMW its long-held championship in the luxury vehicle segment.

2

Can profits be guaranteed? ●

BMW's withdrawal from the 'price war' was a necessary move. Over the past two to three years, the 'price war' in China's automotive industry has intensified, stimulating consumer purchases in the short term but directly leading to reduced product profit margins and ultimately harming dealer and automaker profitability.

To shed the stigma of being a 'no-name electric vehicle,' BMW has repeatedly reduced prices. Early in 2021, the BMW iX3, launched just four months prior, underwent an official price reduction of RMB 70,000 for both its Creative and Proactive trim levels. In late November and early December 2022, the BMW i3 also saw significant price cuts, with discounts of RMB 50,000 to 60,000 in various regions across China.

These price cuts spurred short-term sales growth. According to compulsory traffic insurance data, 6,565 BMW i3 vehicles were insured in December 2022, a sharp increase from the previous three months' figures of 273, 1,414, and 3,291 vehicles, respectively.

Last year, discounts continued. On platforms like Autohome, dealers advertised substantial discounts of up to RMB 100,000 for the BMW i3, with similar offers available for the BMW iX3.

Ultimately, in 2023, BMW Group stabilized its sales in the Chinese market, with a year-on-year increase of 4.2%. Pure electric vehicle sales in China grew robustly, with nearly 100,000 vehicles delivered, a year-on-year increase of over 138%. The BMW i3 and BMW iX3 were the top-selling pure electric models.

However, the direct consequence of price cuts was a decline in profitability reflected in the financial statements. In the first half of this year, BMW Group generated revenues of approximately €73.558 billion, a year-on-year decrease of 0.7%. Profits also continued to decline, with net income of €5.656 billion, a year-on-year decrease of 14.6%, and an operating margin of 8.65%, down 19.1% year-on-year for vehicle operating profit per unit.

BMW Group attributed the decline in revenues to increased competition and weak demand in the Chinese market. Additionally, higher manufacturing costs, personnel expenses, and IT project costs impacted profits. According to the company, raising prices across its model range and lowering sales targets for Chinese dealers will help mitigate the decline in profitability.

However, given the decline in July sales, we cannot help but wonder if BMW can truly stabilize profits by maintaining prices. While adhering to high prices may ensure per-unit profitability, how will overall profits grow when market share accelerates its loss? Ultimately, to maintain competitiveness, BMW may be forced to return to the 'price war,' which could significantly erode consumer trust in the brand.

Moreover, BMW Brilliance and BMW China recently planned to recall over 1.35 million vehicles. Although the recall is unrelated to BMW's quality, some users have modified their steering wheels, potentially installing Takata-produced ammonium nitrate gas generators without desiccants in the driver's frontal airbags, posing a safety hazard. Nonetheless, this significantly increases recall costs and impacts profits.

In pursuing both sales and profits, BMW has yet to find the optimal balance.

3

What's the next step? ●

In an increasingly competitive market, relying solely on price adjustments is unlikely to be a sustainable strategy. BMW must regain market dominance through product, technology, and marketing innovations.

On the product front, BMW plans to introduce over 20 new BMW and MINI models to the Chinese market this year. In the electric vehicle segment, BMW will offer 11 pure electric models in China this year, along with two electric motorcycles.

In April this year, BMW announced plans to invest an additional RMB 20 billion in its Shenyang production base. This investment focuses on upgrading and innovating the Dadong Plant, the birthplace of BMW's production in China, laying the foundation for localized production of BMW's 'NEUE KLASSE' models starting in 2026.

According to BMW, the 'NEUE KLASSE' represents a significant leap forward for the brand and its products, marking a milestone in its electrification transformation. It is expected to be launched globally in 2025 and produced in China in 2026.

BMW Group revealed that it will showcase several mid-life facelifts and new generation models at the upcoming Chengdu Auto Show to steadily advance its business development.

Furthermore, to accelerate the development of autonomous driving technology, BMW's Shenyang R&D Center plans to launch an autonomous driving data processing center and an autonomous driving test workshop in September and December this year. The data processing center will efficiently handle autonomous driving test data, while the test workshop will focus on vehicle modification research and testing, driving the development of autonomous driving technology.

From these plans, it is evident that BMW is striving to align with China's trends. As BMW Group Chairman Oliver Zipse once said, 'The underlying drivers of China's success today will also shape its future development. We see and pay close attention to the enormous potential for development in China, and BMW will continue to maintain its competitive advantage in this environment.'

However, even as BMW strives, can its competitors afford to sit idly by? For instance, FAW-Volkswagen Audi recently announced plans to accelerate its electrification strategy to enhance competitiveness. Through two new platforms, PPE and PPC, it aims to expand its product portfolio and introduce new models like the Audi A5L, Audi Q5L, Audi Q6L e-tron, and Audi A6L e-tron starting next year.

Ultimately, it remains uncertain how the domestic luxury vehicle market landscape will evolve and how long BMW Group can maintain its championship position. Facing its current predicament, BMW urgently needs to establish a unique competitive advantage.

Author | Bai Yuan

Source | CarVisibility

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