The most profitable luxury car is going to change hands?

Author | Chai Xuchen

Editor | Zhou Zhiyu

After leading in sales last year, BMW has once again surpassed Mercedes-Benz in revenue this year. With the current trend of profit growth, it seems that it won't be long before the BBA landscape is rewritten, and BMW can replace Mercedes-Benz to become the most profitable luxury car brand.

BMW and Mercedes-Benz have been fighting for many years, with BMW being consistently overshadowed by Mercedes-Benz for the past 8 years. BMW hopes to defeat this "century-old enemy" in the era of electric vehicles.

On March 21st, the BMW Group emphasized at the 2023 financial report meeting that it will increase investment in the production network related to the Neue Klasse (New Generation) models to strengthen the competitiveness of its products. China will play a more crucial role in this process.

Financial data shows that BMW became the luxury car brand with the highest revenue among BBA last year. The revenue in 2023 reached approximately 155.5 billion euros, surpassing Mercedes-Benz's 153.2 billion euros, with a nearly 7 percentage point higher year-on-year growth rate compared to Mercedes-Benz.

The significant increase in revenue mainly comes from the overall increase in BMW's sales volume and the full integration of BMW Brilliance. Data shows that BMW's global sales volume in 2023 increased by 6.4% to 2.554 million units, ranking first among BBA with 375,000 electric vehicles sold, still significantly ahead of Mercedes-Benz and Audi.

In terms of profit, the gap between BMW and Mercedes-Benz is narrowing. However, compared to Mercedes-Benz's automotive business EBIT margin of 12.6%, BMW Group's automotive business EBIT margin is 9.8%, lower than the industry forecast of 9.9%.

JP Morgan pointed out that the pressure on BMW's profits is due to the accelerated electrification transformation. The financial report shows that BMW's R&D costs surged by 13.8% last year, reaching a new high of 7.5 billion euros, mainly due to increased investment in electrification, digitalization, and autonomous driving.

BMW CFO Merterl also did not shy away from the pressure brought by the transformation to electric vehicles. However, he stated that the increase in sales of high-end models offset the financial pressure from the growth in electric vehicle sales.

BMW is now accelerating its investment in new energy sources, as BMW CEO Zipse seeks to make up for past mistakes. This year will be his final year in office, during which BMW's revenue has soared, but he also misjudged the direction, especially with his statement in 2020 that "BMW will not develop a proprietary platform for electric vehicles, as the existing platforms are sufficient to compete with electric vehicle companies," which caused BMW to miss the opportunity for transformation.

Last year, BMW dropped out of the top ten list of global car companies by sales volume, a precursor to impending danger. In China's high-end market, domestic brands are accelerating their rise.

In the first week of March, in the SUV market with prices above 550,000 RMB, Aito M9 ranked first with 1,859 units sold, while BMW X5 (1,275 units) came in second, marking the first time a domestic brand has beaten BMW to take the top spot in this segment market And this trend is still expanding. On March 22nd, Aito officially announced that the M9, which has been listed for 2 months, has already exceeded 60,000 units. Following behind the M9, the U9, Nio ES8, Tank 700, and Warrior 917 have all entered the top 10 of the list, occupying a significant position.

China, as BMW's most important single market, accounts for over 30% of its sales volume. If the high-end market in China continues to slow down, it would be a fatal blow to BMW.

Last year, BMW's electric vehicle sales in China were 99,900 units, accounting for 12%, even lower than the global market share of 14.5%. Moreover, BMW's main electric models, the i3 and iX3, have been competing on pricing. This indicates the fierce competition in the Chinese new energy vehicle market, where luxury brands like BMW do not have much advantage against local players.

Facing attacks from new forces, BMW has decided to fight back decisively, focusing on new energy and intelligence. It positions itself as a tech company and will consolidate its technology in the upcoming Neue Klasse (New Generation) models. BMW claims that this will be a leap in brand and product direction.

In this year's financial report, BMW unveiled the plan for the new generation models for the first time: production will start in 2025, with at least 6 models to be released within two years, starting with a pure electric 3 Series and an SUV.

BMW also promised that this year, the production network related to the new generation models will further expand, and the group's R&D investment and capital expenditure in the automotive business will reach a peak.

BMW repeatedly emphasizes its focus on the Chinese market. According to the plan, the new generation models will be domestically produced in the Shenyang factory in 2026. The sixth-generation power battery project of BMW Shenyang production base, with an investment of 10 billion RMB, has been capped. This project is the domestic supporting facility for the "new generation models."

In terms of intelligence shortcomings, BMW started to enter the L3 level high-end intelligent driving last year and comprehensively upgraded its R&D system in China, attempting to catch up in the domestic intelligence battle.

However, BMW's "trump card" will take another 1-2 years to play out. Before that, BMW may have to continue relying on pricing to maintain its market share, while increasing its transformation efforts, which also means it will need to spend more effort balancing sales volume and revenue.

Fortunately, BMW currently has a huge product matrix, which can offset the losses in new energy with high-end fuel vehicles. The next challenge for BMW is whether it can adjust its posture in the rapidly changing competitive landscape in time. As it strives to achieve its dream of being the top luxury car brand before the outbreak