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BMW has long called itself the ultimate driving machine, but lately it doesn't seem to be the ultimate destination for customers in the German luxury and performance

market

. In 2016, BMW lost its crown as the world's best-selling luxury brand to German rival Mercedes Benz. In 2012, the BMW brand led Mercedes Benz and global annual sales, but the three-pointed star gained the top spot in 2016 and has maintained it ever since. Mercedes has also overtaken BMW on its home continent of Europe, an important

market

for both. To be fair, in 2018, the total sales of the entire BMW group slightly exceeded those of Mercedes Benz cars.

The BMW Group sold 2,490,664 units that year, compared to 2,438,987 for Mercedes Benz cars. But still, investors and industry observers have noted the upside. Mercedes has beaten BMW. Sales growth at BMW has slowed over the past five years and investors fear the brand has stagnated somewhat. BMW really has become a bit stale and boring, too consensual and doing more of the same. And I think they need to come back to really innovate a little more aggressively. And design has become more of the same. That's why I think BMW is a kind of identity crisis. And ultimately that's why they're replacing a CEO, because it's all gotten a little boring.

BMW appointed a new CEO in August 2019 and has assured investors that it is on the path to revitalization. Understand how a name as historic as BMW now elicits such opinions from the investment community. It's important to look at its history and what made it such a powerful automaker in the first place. BMW was founded in 1916 as a manufacturer of aircraft engines; A notable German effort also emerged from the First World War: the BMW. Now, this engine is the first engine I know of in all of history that attempted to overcome the effects of altitude on power.

The famous blue and white emblem, which has changed little since the company's founding, incorporates the blue and white colors of the Bavarian state flag in a shape that resembles a rotating airplane propeller. In the years after World War I, a state ban on manufacturing aircraft engines led the company to manufacture railroad brakes and inboard engines. BMW announced that it would convert its first complete vehicle into a motorcycle in 1923. The basic engine design of that first BMW engine model has remained largely the same since the company acquired an automobile manufacturer in 1928 and produced its first automobiles under the name of BMW in 1929.

The first BMW automobiles were licensed designs from the Austin Motor Company. But BMW began producing its own designs in 1932. When World War II broke out, BMW manufactured weapons and other war materials, often using forced labor from convicts, prisoners of war, and concentration camp prisoners. The company said it is painfully aware of the suffering it caused at this time and regrets the fate of these forced laborers after the war. The machines used to manufacture weapons were destroyed and the company manufactured household appliances. The occupying military government of the United States ordered the dismantling of the BMW plants and a considerable part of the machines were sent to other countries as reparations for the war.

BMW eventually resumed manufacturing motorcycles after World War II, beginning with an improved version of the original R23 model that the company had first designed in the early 1920s. The motorcycle exceeded sales expectations, selling 9,144 units. in his first year. BMW started making cars again in the early 1950s. His first post-war car was the 501, which was not a sales success. The company's first blockbuster car arrived in 1961 with the 1500 compact sedan. The group founded its BMW Motorsport racing subsidiary in 1972, which would provide direction and inspiration for performance-oriented BMW cars. The 1500 was a turning point for the brand. BMW soon launched similar models 1600, 1800 and 2000.

But it was the 2002 that really made a splash, and is often credited with being the first model that distinguished BMW as a purveyor of a new type of vehicle. The German sports sedan BMW replaced the 02 series with the 3 series in 1975 and, since then, this small sports car has been the sports sedan to beat. Over time, BMW also began selling M-badged cars from the BMW Motor Sport Division. Cars like the M3 and M5 were and still are higher-performance versions of BMW sedans that offer everyday customers the performance they need for the track. BMW, whose sales grew as the company solidified its reputation for combining luxury features with a European pedigree.

But over time, buyer tastes begin to change, beginning with a boom in sport utility vehicles in the late 1990s. Both BMW and its German rival Mercedes were eager to fill the need. BMW introduced its first sport utility vehicle, the X5, in 1999. Purists complained, as they would with other brands that embraced the SUV trend. Maybe sensitive to this. In particular, BMW referred to its SUVs as sports vehicles, avoiding associating its products with utility. Despite the backlash, sales of sports vehicles have boosted the company's revenue. They accounted for 37.3 percent of BMW's total sales in 2018, up from 33.8 percent in 2017.

However, some investors are concerned that BMW has strayed too far from its identity as a German brand. high performance. I mean, I think what they're trying to do is create a car for the driver, even if it's a large SUV or a midsize SUV, and still make it fun to drive for that segment. Obviously for the next seven I won't drive like a. That is simply not possible in physics. But in terms of it can't drive and it's more fun than some of its competitors. Maybe that's your strategy. But I think that certainly dilutes it. And I think when people think of performance, they don't necessarily think of an SUV.

In recent years, BMW's sales have not kept pace with the growth of the global luxury market, such as those of Mercedes. Mercedes has maintained its share along with some of its peers who have stolen share from BMW. And a big reason for that is that Mercedes simply sells more model variants than BMW. And if a consumer leans more toward premium or luxury rather than just the driving experience, we think greater customization and a greater variety of models favor Mercedes. Investors also fear that BMW is falling behind in the race to make profitable electric vehicles a key frontier in the auto industry.

The company took an early advantage over many other car companies with its all-electric i3 city car and i8 hybrid sports car. BMW said it will end production of the i8 after launching a limited, sophisticated addition. The i3 has not been a resounding sales success either. Its design was unique but polarizing, with many critics highlighting its odd shape and lack of coherence with BMW's overall aesthetic. The car also can't go as far on a single charge as other, even less expensive electric vehicles. Of course, there are elements of the i3 that are notably innovative, such as the carbon fiber chassis.

BMW uses it to reduce weight and extract more range from the car on a single charge. And even though the car is very small. BMW has said it has the same amount of interior space as the brand's famous three-series sedan. Now many automakers are bringing their own fully electric vehicles to market. And BMW has at times seemed to waver in its commitment to electric vehicles. Critics accused former CEO Harald Krueger of being too cautious in investing in electrification. The brand's electrification strategy has also changed fiscally while the i3 is a fully electric vehicle. BMW is now more aggressively pushing plug-in hybrids, cars that run on both gasoline and a rechargeable electric motor and battery.

This could prove less expensive than investing in all-electric vehicles in the short term. But industry analysts wonder what will happen when the broader industry moves to all-electric cars. The longer-term concern we have for them is that they approach electrification with a very aggressive plug-in hybrid strategy. And the concern is what will happen if consumers want full-battery electric cars sooner than expected. One of BMW's main competitors is Audi, owned by the huge German automaker Volkswagen. VW has thrown its weight behind battery electric vehicles, betting that it can manage the costs of going all-in on the technology and selling electric cars in high volumes.

VW is able to understand the reason for this. They just have more scale by making the Jaguar with Naut Volt. When you have scale, you can reduce most costs by making it better. A big part of that 30 percent is just manufacturing scale. So they definitely have an advantage. And you are right. UMW will face greater margin dilution in its term than VW. At the 2019 Frankfurt Motor Show, VW reportedly said it had already reduced the cost of batteries to $100 per kilowatt hour. And there are doubts that BMW can achieve battery costs anywhere close to that. That said, premium automakers like BMW will likely find it easier to manage the costs of the technology needed to meet increasingly strict emissions regulations, as they can simply charge higher prices for their vehicles and secure better margins than many mass-market automakers.

The real reason for this is that electrified cars, especially fully electrified cars, cost me more than their ICE counterparts. And the real reason for this is the high cost of batteries today. Now, over time, battery costs could go down. But as we have seen in companies like Tesla, for example, the premium consumer is less price sensitive and can pay more. We know that electric vehicles will cost more than their AC ICE counterparts. Therefore, having the premium offering should help meet CO2 requirements and drive demand and consumers' willingness to pay more for these products. BMW's current history has some bright spots.

The brand has a host of new cars launching in the coming years, including a new addition to its electric I sub-brand and new models from the M division. BMW also has strong brand recognition, but I don't think the products will be necessarily the problem is competition in the market itself. The fact that, you know, people like Elon Musk have come along and captivated people and separated them to be a part of something that's completely different than what BMW does. I mean, BMW, Tesla. It is simply not possible. So in terms of refreshing your image, maybe it is.

It is an exercise in marketing, advertising and image more than a product, because I don't think there is any problem there. Things like the way the vehicles, like the way they drive. It's not so necessary. But the market is difficult. It has arguably transitioned from a purveyor of sports sedans to a maker of high-end family vans. Their cars remain highly desired among buyers around the world. That includes the largest and perhaps most important market in the world today: China. The Chinese auto market has slowed in recent quarters, but much of the weakness has been in core segments.

The premium segment that BMW plays in has remained strong. And BMW continues to see solid growth there. It is from afar. BMW's largest market, which accounted for 30 percent of its global sales in 2018. BMW Group sales in China rose almost 8 percent to 640,800 three units. That's up from 595,020 units in 2017. In 2018, BMW said it would increase its stake in its Chinese joint venture in 2022. Foreign automakers doing business in China typically have to enter into 50/50 partnerships with local companies. . By increasing its share, BMW increases the profits it can make from its company. This is also important because in the next decade emerging markets will account for 100 percent of incremental auto sales. 70 percent of that will be in China.

Furthermore, BMW China's margins are higher than its margins outside of China. BMW told CNBC that it is considered the ultimate driving machine. No matter the model or powertrain, the legendary German brand will likely need to reinvest those profits into its business if it hopes to regain its title as the world's best-selling premium brand.