2024-07-17
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Price cuts have not resulted in sustained sales growth. How can BMW break the downward trend in the Chinese market?
Text｜"Chinese Entrepreneurs" reporter Ren Yafei
Editor: Ma Jiying
Image source: Visual China
BMW chose to bid farewell to the two-year price war in the automotive industry with a "dignified" farewell.
On July 11, a blogger said on a social media platform that due to the price war, BMW will reduce sales volume from July to stabilize prices and ease the operating pressure of stores. In response to this rumor, BMW China said,In the second half of the year, BMW will focus on business quality in the Chinese market and support dealers to make steady progress.
Last year, in order to maintain its market share, BMW chose to cut prices to survive, with the annual discount rate reaching 17.66%, far exceeding the industry average.
Take the BMW i3 electric car as an example. Its bare car price has dropped by half from 353,900 yuan, and the landed price after insurance has dropped to less than 200,000 yuan. The starting price of the BMW 5 Series fuel car has also dropped to about 310,000 yuan, which is equivalent to a 30% discount.
The report card brought by this is that in 2023, the BMW Group's global sales will be 2.555 million vehicles (BMW, MINI, Rolls-Royce), a year-on-year increase of 6.5%, of which 825,000 BMW and MINI vehicles were sold in the Chinese market, a year-on-year increase of 4.2%. However, the BMW Group's net profit last year fell by 34.5% year-on-year.
By the first half of this year, its sales trend was no longer optimistic.In the first half of the year, BMW Group's cumulative sales in the Chinese market were 375,900 vehicles, down 4.2% year-on-year.
How to get rid of the curse of declining sales in the Chinese market has become BMW's top priority.
"The bare car price of the BMW i3 eDrive 35L is 196,000 yuan. If you choose a five-year loan plan, it only costs 210,000 yuan." On July 11, a salesperson at a BMW 4S store in Beijing urged the reporter to make an order quickly because the policy would be adjusted soon, "Many stores have no stock of cars."
In June, the above-mentioned BMW i3 was priced at less than 200,000 yuan. The reporter visited several BMW 4S stores in Beijing and learned that under the influence of multiple factors such as domestic independent brands' pursuit of high prices and price wars, BMW had to lower its posture and reduce prices to increase sales.
In May this year, Porsche China pressed dealers to stock up in order to complete sales targets, which led to the intensification of conflicts between Porsche and dealers, and the company directly "forced the palace" to the German headquarters. Affected by this incident, BMW took the initiative to send a letter to dealers, "In view of the market background and the huge impact brought by domestic brands, it has decided to offer BMW 4S stores a number of substantial subsidy reduction policies", which also gave dealers enough confidence to cut prices for promotions.
BMW 4S store
According to the reporter, in addition to the BMW i3, many BMW models have seen significant price cuts. Take the 2024 BMW i5 as an example. The starting price when it was launched was 439,900 yuan, but in many stores, the terminal discount exceeded 110,000 yuan.
But the price reduction did not lead to sustained sales growth.On July 10, the BMW Group announced its first half performance report. Data showed that BMW China's cumulative sales volume was 375,900 vehicles, down 4.2% year-on-year. During the same period, BMW's global sales volume increased by 2.3% year-on-year.
At the same time, BMW also failed to maintain its market sales performance in China.
In the first quarter, BMW (including MINI) sold 187,500 vehicles in China, down 3.8% year-on-year; in the second quarter, BMW (including MINI) sold 188,500 vehicles in China, down 4.7% year-on-year, and the decline widened further. In addition, the price cuts led to a decline in profits. In the first quarter, the BMW Group's overall revenue fell slightly by 0.6% year-on-year, and its net profit fell by 19.4% year-on-year.
In the view of Sun Xing, an automotive industry researcher, the pricing of new energy vehicle models of traditional luxury brands is inflated. Brand, design, service and reputation have always been the soft value of luxury brands, so they have a certain market premium. But in the new energy vehicle track, the premium rights of luxury brands have begun to decline, and to some extent all brands have returned to the same starting line. "In the era of fuel vehicles, luxury brands are the best moat for companies, and consumers are willing to pay for high premiums, but in the era of electric vehicles, consumers are becoming desensitized to brands."
CITIC Securities pointed out that compared with BBA, the leading new car-making forces have a clearer positioning. For example, Wenjie and Xiaopeng focus on intelligence, and the labels of Ideal and Weilai are also relatively obvious.
The difficulties and setbacks BMW encountered in the Chinese market are a microcosm of the current luxury car market.
In the era of fuel vehicles, A once occupied 90% of the market share in China's luxury car market.But in the new energy era,BBACurrentlyGo into the fork.
According to Bloomberg New Energy Finance data, international traditional automakers have lost nearly 20% of their market share in the Chinese market over the past three years. The market share was 59.5% in the first quarter of 2020 and fell to 41.2% in the fourth quarter of 2022. These lost shares were taken over by traditional Chinese automakers and new forces. In the past three years, Chinese automakers, led by BYD, have increased their market share by nearly 13%, and the share of new forces has increased by nearly 3%.
BBA's presence in the Chinese market is also changing.
In 2020, the sales volume of passenger cars in the Chinese market was 20.178 million units, and the sales volume of A in China was about 2.28 million units, accounting for 11.29%; by 2023, the sales volume of passenger cars in the Chinese market increased to 26.063 million units, and the sales volume of A in China was only 2.32 million units, and the proportion dropped to 8.9%, losing about 2.4% of the market share in three years.
causeBBAInThe main reason for the decline in China's market share is the rapid rise of Chinese brands in the electric vehicle market and the increasing penetration rate of electric vehicles in the luxury car market.
According to the China Passenger Car Association, the retail penetration rate of new energy vehicles in China reached 48.4% in June this year, an increase of 13.5 percentage points from 34.9% in the same period last year. Among them, the penetration rate of new energy vehicles in domestic luxury cars reached 29.8%.
This is an extremely dangerous signal for BMW.
In fact, BMW is a pioneer in the new energy wave.
In the 1970s, the global oil crisis broke out, and countries such as Europe and the United States began to think about energy transformation. Some traditional car companies began to explore new power sources that could replace fuel engines, and BMW became one of the first pioneers.
In 1972, BMW built two 1602 Electric test vehicles based on the 2 Series model. However, due to a range of only 60 kilometers and the technical bottleneck of lead-acid batteries, this model was not officially mass-produced and BMW subsequently stopped research and development.
In 1987, BMW launched an electric car called 325iX based on the 3 Series. This car was equipped with a sodium-sulfur battery with a higher energy density and a range of 150 kilometers. However, due to the high operating temperature of the sodium-sulfur battery and the potential safety hazards, this car was not finally put on the market and was used as an office car for the government postal department.
Since then, BMW has been testing the waters in the field of new energy, not only launching the pure electric model BMW E1 equipped with nickel chloride, but also releasing the BMW 3 Series test car equipped with nickel-cadmium battery technology. However, since many models were only test cars, BMW did not really enter the new energy vehicle market until 2010.
It was not until February 21, 2011 that the BMW Group officially launched its new energy vehicle brand, the BMW "i" brand. After that, the BMW i3 and i8 were launched one after another.
Compared with many previous products, the overall design and appearance of the BMW i3 and i8 are more in line with the mainstream market aesthetics. In addition, the two models use carbon fiber materials in the body structure, which greatly reduces the weight of the body. Therefore, these two models attracted much attention in the industry at that time. At that time, BMW even confidently stated that by 2020, the market share of BMW new energy vehicles will reach 15% to 20%.
Unexpectedly, after Harold Krüger became the new CEO of BMW Group in 2015, the development of BMW's pure electric strategy was slowed down. Many people in BMW Group, including Krüger, were prejudiced against pure electric vehicles, so they focused more on plug-in hybrid models.
Afterwards, i brand series R&D engineer Dirk Abendroth, chief designer Benoit Jacob and product management manager Hendrick Wenders all resigned and joined Byton, a new car manufacturer at the time.
According to China Entrepreneur, by the end of 2019, six years after the BMW i3 was launched, the BMW Group had only launched 10 new energy models, seven of which were plug-in hybrid models, and the only pure electric models were the upgraded i3, the sports version of the i3s, and the Mini Cooper pure electric version. The remaining models, including the 740Le and 530Le, were all "oil-to-electric" products.
At that time, the entire new energy vehicle industry had undergone tremendous changes.
After Tesla entered China in 2014, a wave of new energy vehicle manufacturing swept the country, with new energy vehicle companies such as Weilai, Xiaopeng and Ideal established one after another. In addition, with the strong support of local governments in China, China has gradually become one of the largest markets for new energy vehicles in the world.
Mercedes-Benz and Audi have also begun to actively deploy new energy vehicles. In 2019, Audi launched its first pure electric coupe, the e-tron; Mercedes-Benz also launched its first new energy product, the Mercedes-Benz EQC, in the same year.
By 2020, according to public data released by EV Sales, BMW's global annual sales of new energy vehicles totaled 163,500 units, ranking fifth in the automaker sales list that year. Tesla ranked first with 499,500 units, while Volkswagen, BYD and SAIC-GM-Wuling ranked second, third and fourth respectively.
It is worth noting that in 2020, BMW's share of the global new energy vehicle market was only 5.23%, which is far from the market share target of 15% to 20% proposed seven years ago.
Faced with the development trend of electrification in the market, BMW hopes to catch up with its competitors through a "great leap forward" in electrification.
In March this year, at the BMW Group's 2024 Annual Financial Report Conference, BMW Group Chairman Zipse once again emphasized that half of BMW's global vehicle deliveries will be pure electric models by 2030. But he also admitted that the growth of the global pure electric vehicle market will not be linear, and the BMW Group will maintain a flexible product launch strategy to meet the differentiated needs of different regional markets.
The financial report shows that in 2023, BMW Group's R&D investment increased to 7.538 billion euros, a year-on-year increase of 13.8%, accounting for approximately 5% of the group's revenue.These investments are mainly concentrated in three directions:The first is the research and development of electrification and digitalization of vehicle models; the second is the field of autonomous driving; and the third is the research and development of new vehicle models, including BMW's new generation of models.
The results of the electrification transformation are already evident. In the first half of this year, BMW delivered a total of 1.0965 million vehicles worldwide, a year-on-year increase of 2.3%, of which 179,600 were pure electric vehicles, a year-on-year increase of 34.1%.In the Chinese market, sales of BMW brand pure electric vehicles increased by 19% year-on-year to approximately 53,500 units.
Judging from the plans of various brands, China is a market where BMW will focus its efforts.
According to the reporter, including the BMW M5, BMW will launch nearly 10 high-performance models in China this year. By the end of this year, the number of M brand models sold in China is expected to expand to 23, covering compact, medium to large luxury cars, and the drive forms include oil, electricity, plug-in hybrid and other energy forms. According to the plan, the new generation of BMW models will be launched in the global market in 2025, and at least 6 models will be put into production within the next 24 months.
In addition, in recent years, BMW has continuously increased its investment in Shenyang. In June 2022, BMW's Lida plant in Tiexi, Shenyang, opened. The plant has a total investment of 15 billion yuan and is the first plant in the world designed by the BMW Group for the production of new energy vehicles. In November 2023, the sixth-generation power battery project of BMW Brilliance, with an investment of 10 billion yuan, was officially capped and the main building was completed. In April this year, BMW announced plans to increase investment by 20 billion yuan in the Shenyang production base to deepen its layout in China and help the "new generation" models to be mass-produced in China as scheduled in 2026.
In the longer term, BMW hopes that the range and profitability of electric vehicles will be comparable to those of fuel vehicles. This means that BMW still has a long way to go in terms of investment in the industrial chain and cooperation with partners such as suppliers and dealers.
But according to foreign media reports, in early July this year, the BMW Group reiterated its firm stance in the automotive industry, stating that it will stick to the roots of traditional fuel vehicles while investing in the future of electric vehicles as planned.This means that BMW has clearly defined its strategic direction of developing new energy vehicles in parallel with traditional fuel vehicles.
Zhang Xiang, an automotive industry analyst, said that in the era of fuel vehicles, luxury cars represented by BMW have absolute pricing power and have gained absolute fans. In future development, electrification transformation is the most important link. Whether the transformation can be successfully completed is also the key for these companies to continue to have the right to speak and win in the future. With the increasing attention paid by BBA to new energy vehicles, domestic new energy vehicles have returned to market-driven, and the real competition has just begun.
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