Big Plans

BMW eager to race ahead of rivals Mercedes, Tesla

Switzerland Geneva Auto Show
Trust me, it's better than an SUV. Source: AP

German carmaker BMW announced that 2017 was the best year in the company’s history, with the Munich-based group earning more than €10 billion ($12.3 billion) before tax for the first time, concluding its eighth consecutive record year. But BMW’s CEO Harald Krüger wants more, especially since his company’s announcement followed a similar one made by its Stuttgart-based rival Daimler, maker of the luxury brand Mercedes.

Mr. Krüger’s stated aim is to break more records in 2018 and then catch up with Mercedes by 2020, and all this despite trade disputes with the US and diesel woes.

BMW’s 2017 figures matched expectations. Analysts anticipated that the US tax reforms would add an extra €1 billion to profits. Major contributors to sales and profits, such as the 3 and 5 series and the X3, are going through a model change. This means customers are more likely to want the new model. To get rid of the old ones, BMW will either have to grant discounts or cut sales.

Unfortunately for BMW, the group misjudged the US market and still has too few SUVs in its repertoire. Meanwhile, the diesel mess has unsettled customers in Germany and the UK, although in the end BMW sold only 30,000 fewer diesel vehicles than in the previous year. In contrast, the market for company cars in Europe is thriving and there is no end in sight for the automotive boom in China. In total, the BMW brand sold 4.2 percent more cars than in the previous year, surpassing the threshold of 2 million for the first time.

This uptick in sales helped BMW increase its lead over another German rival, Audi. But not Mercedes. The company is around 200,000 units behind the latter luxury brand. If added together with its British subsidiary Mini, though, the BMW Group came out ahead of Daimler’s Mercedes and Smart brands.

To help boost sales of electric vehicles in Germany, Mr. Krüger wants to put pressure on the next German government.

Last year, the Mr. Krüger announced the “biggest model offensive in the company’s history” and took steps to significantly increase production capacity. Along with the new 5 series, BMW is launching more SUV models, with the compact X2 and the extra-large X7 to be added to the range this year. The best-selling X3, which until now has been produced at only one plant, will in future also be manufactured in China and South Africa.

BMW also plans to put pressure on Mercedes in the luxury category, hoping that its new 8 series, which has been announced for the end of the year, will bring the Mercedes S-Class’ dominance to an end.

And while Mr. Kruger’s current goal is to beat out Mercedess, the CEO is keeping a watchful eye on Elon Musk’s Tesla. BMW is not generating nearly the same kind of hype for its electric cars and hybrids as Tesla is. For the first time in 2017, BMW sold more than 100,000 purely electric and plug-in hybrid models, and is aiming to increase this to 140,000 in 2018. Plus, Tesla’s large electric sedan “Model S” is outselling BMW’s 7 series in Europe, while there is considerably more demand for Musk’s “Model 3,” despite bottlenecks in supply, than for BMW’s “i3”.

Mr. Krüger is increasing development budgets significantly in a bid to counteract this. The company announced this week that it will produce the electric sedan “i4” at its Munich plant. This move will eventually be followed by the electric limousine “inext” in 2021, which will be self-driving. But before that, an electric version of the X3 is to go into series production in China, while an electric Mini will be made in Oxford in the UK. The German carmaker also aims to enter a joint venture with Great Wall Motors to produce e-Minis in China in addition to its Oxford plant amid Brexit uncertainty. A hard Brexit would also affect BMW’s other British subsidiary Rolls-Royce.

To help boost sales of electric vehicles in Germany, Mr. Krüger wants to put pressure on the next German government. “We’re developing a fast-charging network and that’s not our task,” he thundered at the Geneva Motor Show. BMW plans to demand a complete package from the government that clarifies the future of diesel as well as support for electromobility. The company’s CEO, like other German carmakers, wants to know where they should rev up production and where they should slam on the brakes.

Markus Fasse has specialized in the aviation and automobile industry. He has been an editor at Handelsblatt since 2000 and a correspondent in Munich since 2005. To contact the author: fasse@handelsblatt.com

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