"Faced with the trend of electrification, traditional automakers are often reluctant to start anew"

Text

BMW officially announced in July that it would "exit the price war", but its sales in China nearly halved in August and was exposed to have "returned to the price war" in September.

Since Tesla first reduced its prices in China in January last year, kicking off this auto market price war, both fuel vehicles and electric cars, both domestic and luxury brands, have been drawn into this price war. Automakers have used increasingly generous discounts to stimulate potential users and attempt to capture market share, but extreme internal competition has led to a significant reduction in profits for automakers.

However, BMW was the first to withdraw from the game after 18 months, but did BMW change its mind just over two months later? With such repeated reversals, what is BMW's marketing strategy aiming for?

Caught between price and sales, a dilemma

Looking back on why BMW chose to withdraw from the price war in July, the company officially stated that it wanted to help dealers cope with short-term market challenges and ease business pressures by reducing sales targets and maintaining relatively stable prices.

BMW's previous strategy of trading price for volume primarily involved models such as the BMW i3 and i5, which are pure electric vehicles, as well as the BMW 3 Series and 5 Series, which are fuel vehicles. Among them, the net price of the BMW i3 after discounts at dealer stores in some regions is about 170,000 yuan, while the official guide price of this model is 353,900 yuan, equivalent to a 50% discount. Additionally, the starting price of the BMW 5 Series fuel vehicle once dropped to around 310,000 yuan, which is roughly a 30% discount.

Both new and old automakers are fiercely competing, but it is the dealers who are struggling the most.

According to the survey results of the China Automobile Dealers Association, the proportion of dealers experiencing losses in 2023 was 43.5%, and only 27.3% of dealers achieved their annual sales targets.

Taking Yongda Auto as an example, its financial reports show that since the price war began in 2021, the gross profit margin has fallen from 9.9% to 8.9% and then to 6.9% by 2023, while net profit has dropped from 2.48 billion yuan to 1.412 billion yuan and then to 573 million yuan.

In May of this year, Porsche China dealers even pressured the German headquarters to boycott new car deliveries and demand compensation for new car sales losses.

So at the expense of dealers, did BMW manage to boost sales by lowering prices?

Unfortunately, the answer is no. Data shows that BMW Group sold a total of 1,213,359 new vehicles globally (including BMW, MINI, and Rolls-Royce) in the first half of the year, a year-on-year decrease of 0.1%. Specifically, BMW sold 376,000 vehicles in China, a year-on-year decrease of 4%. Furthermore, the price reduction strategy undoubtedly has a significant impact on brand value.

As a result, BMW failed to achieve its goal of trading price for volume, losing both the price and the sales.

However, BMW's decision to withdraw from the price war and return to its original pricing strategy has backfired on some consumers. Some customers who have already signed contracts but have not yet picked up their cars have been told by some salespeople that they need to pay extra to pick up their cars, casting a shadow over their purchase plans and prompting them to postpone their purchases.

Since announcing its withdrawal from the market price war, BMW's sales have continued to decline.

In August of this year, BMW sold a total of 34,800 vehicles in the Chinese market, a year-on-year decrease of about 40% and a month-on-month decrease of about 30%. In contrast, Mercedes-Benz sold 49,000 vehicles in August, unchanged from the previous month, while Audi sold 47,900 vehicles, even showing a month-on-month increase.

Not long ago, BMW Group announced adjustments to its financial guidance for fiscal year 2024. Due to continued sluggish demand in key markets such as China, BMW adjusted its guidance for fiscal year 2024 as follows: deliveries will decline year-on-year, compared to previous expectations of growth; EBIT margin for 2024 will be between 6% and 7% (previously 8% to 10%); and return on capital employed will be between 11% and 13% (previously 15% to 20%).

Upon the announcement, BMW's share price plummeted 17.08% on the following trading day, dragging down the share prices of other prominent automakers such as Mercedes-Benz, Volkswagen, Porsche, and Renault.

Investors have voted with their feet in exchange for volume.

Can BMW dictate terms without engaging in a price war?

According to relevant media reports, the price of the BMW i3 is now below 200,000 yuan when purchased from a dealer, with prices starting at just over 190,000 yuan. Similarly, the price of the fuel version of the 3 Series is also just over 200,000 yuan.

In response, BMW officially stated that this is an autonomous price adjustment made by authorized dealers based on market conditions and is not an official unified promotional action.

The underlying issue reflected here is that BMW dealers are struggling, and the decline in sales caused by high prices has put immense pressure on their cash flow.

The primary mode of cooperation between domestic dealers and luxury automakers is the "sales authorization model." Dealers need a significant amount of capital to purchase vehicles, so most of them choose to borrow from banks and repay the loans after selling the vehicles. Once new car sales become difficult, they become inventory backlog, leading to difficulties in dealer capital turnover and cash flow disruptions, prompting a new round of price cuts by BMW dealers.

It can be said that dealers suffer whether prices rise or fall.

To make matters worse, BMW recently had to recall over 1.5 million vehicles globally due to a faulty brake system produced by Continental AG.

With insufficient product competitiveness, fluctuating prices, and safety and quality issues, BMW's brand image has inevitably suffered. As a premium automotive brand, BMW's brand value and market reputation are essential factors for consumers when choosing its products.

The decline in BMW's brand image has further exacerbated dealers' pessimistic expectations for their sales, forcing them to lower prices. Although BMW officially has not returned to the price war, dealers' autonomous pricing reflects the pressure of market competition.

Under the general trend, BMW has no choice but to comply.

In addition to price cuts, BMW needs more trump cards

One model that deserves attention in this round of price cuts is the BMW i3, which has seen the largest price reduction.

This is a BMW electric vehicle that was launched in 2014 and has been in production for ten years. As BMW's transitional product into the electric vehicle industry, this model is a "fuel-to-electric" conversion since BMW had not yet established a dedicated electric platform.

However, fuel-to-electric conversions have become unpopular among many users due to significant drawbacks such as short driving range, limited space due to body structure constraints, low mechanical integration, and reduced overall performance.

Nonetheless, the i3 was not unsuccessful. When it was first launched, the price ranged from 449,800 yuan to 516,800 yuan, but sales were mediocre. It was not until price cuts and the price war that sales of the i3 picked up, and in October 2023, it surpassed competitors in the same segment, including the NIO ET5 and Tesla Model 3, with sales of 5,763 units.

Another possible reason for dealers' significant price adjustments may be to clear inventory before the launch of the new pure electric i3.

As a transitional electric vehicle product, the i3 has played a smoothing and transitional role in BMW's entry into the pure electric vehicle market. However, its historical mission is not yet complete, as BMW's own pure electric platform, Neue Klasse, is not expected to be launched until 2025.

From the perspective of the pure electrification layout, BMW is lagging behind not only domestic new energy vehicle companies but also traditional automakers.

Volkswagen caught up with the rapid development of electric vehicles in 2020 by launching the MEB electric platform. By 2025, when Neue Klasse is launched, Volkswagen Group plans to introduce 30 different models.

Mercedes-Benz, on the other hand, introduced four all-new pure electric models (EQA, EQB, EQS, and EQE) based on a new platform in 2021 and launched its all-new pure electric MMA architecture platform this year.

Meanwhile, new energy vehicle startups are constantly introducing innovative products. Recently, Huawei launched the Enjoy S9, a large executive sedan targeting competitors such as the Audi A6, Mercedes-Benz E-Class, BMW 5 Series, and NIO ET7.

Currently, the monthly sales of sedans priced above 300,000 yuan range from 80,000 to 110,000 units, of which only 10,000 to 13,000 units are electric vehicles, with a penetration rate of about 12.5%, far below the market average of over 45%.

In this race for the high-end electric vehicle market, BMW is not only unable to be a pioneer but may soon find itself running out of time to catch up.

Without the advantage of time, BMW must focus on improving its products if it wants to gain an upper hand. Relying solely on fuel-to-electric conversions will only label it as a "generic electric vehicle" brand.

Starting from customer needs and addressing customer pain points are often the keys to successful brand marketing. For example, while tour buses are popular in the European market, the domestic market favors family-oriented vehicles, as evidenced by the success of Lixiang's L6, which has opened up a new segment for household SUVs.

As a company that has been deeply rooted in the domestic market for many years, BMW should not have much difficulty understanding its customers. We look forward to BMW entering a new phase, albeit one that will require another year of waiting.