Strategies for Autonomous, Connected and Smart Mobility in the Automotive Industry. A Comparative Analysis of BMW Group and Tesla Motors Inc.

Table of Contents

Executive Summary

List of Abbreviations

List of Figures

List of Tables

1. Introduction
1.1 Problem definition
1.2 Methodology

2. Theoretical Background and Literature Review
2.1 Strategic Management
2.2 External Analysis Framework
2.2.1 The Macro-Environment
2.2.2 Competitive Forces - The Five Forces Framework
2.2.3 Key Success Factors
2.3 Internal Analysis Framework
2.3.1 SWOT Analysis
2.3.2 Generic Competitive Strategies
2.3.3 VRIO Framework
2.4 Related Work and Additional Concepts

3. Analysis of the Automobile Industry
3.1 Industry Overview
3.1.1 Market Size and Growth Rate
3.1.2 Transition to Autonomous Driving
3.1.3 New Mobility Business Models
3.1.4 Future Profit Pool
3.2 The Macro-Environment
3.2.1 Political Factors
3.2.2 Economic Factors
3.2.3 Social Factors
3.2.4 Technological Factors
3.2.5 Environmental Factors
3.2.6 Legal Factors
3.3 Industry Competition
3.3.1 Competitive Forces - The Five Forces Framework
3.3.2 Key Success Factors
3.3.3 Competitors and Markets

4. Comparative Analysis of BMW and Tesla
4.1 BMW Group
4.2 BMW Corporate Strategy
4.2.1 BMW Strategy Number One > Next
4.2.2 BMW Group SWOT Analysis
4.2.3 BMW Group VRIO Analysis
4.3 Tesla Motors Inc.
4.4 Tesla Corporate strategy
4.4.1 Tesla Master Plan 2016
4.4.2 Tesla SWOT Analysis
4.4.3 Tesla VRIO Analysis
4.5 Financial Performance of Tesla and BMW

5. Results and Key Findings

6. Conclusion and Suggestions for Further Research

7. Bibliography

Executive Summary

The automotive industry is facing the biggest changes in its over 100-years existence. In the end of this decade, the first electric vehicle is going to enter the mass market that can compete on product features, comfort and price with the internal combustion engines. People keep moving in urban areas. The requirements toward future mobility increase. Some countries already decided to prefer electric vehicles before conventional cars. Profits will shift to other markets or segments. Incumbents must align their current strategies to keep their market share in future and participate in future profit pools of the automotive industry.

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1 Components of a Company's Marcoenvironment

Figure 2: The Five Forces That Shape Industry Competition

Figure 3 Porter’s Three Generic Strategies

Figure 4 The Automobile Industry Life Cycle - A Hypothetical Pattern

Figure 5 The Disruptive Innovation Model

Figure 6 Global Car Sales 1990-2016

Figure 7 Worldwide automobiles sales in million by countries, 2015

Figure 8 Passenger car sales in million, selected markets

Figure 9 The world’s biggest automobile producers by volume, 2014

Figure 10 Five levels to full automation of driving

Figure 11 Companies testing SDCs in California, USA

Figure 12 New Automotive Ecosystem, in km driven worldwide

Figure 13 EBIT margin comparison industries - selected industries average

Figure 14 Revenue Projections Auto Industry

Figure 15 GDP total annual growth rate, selected regions

Figure 16 EV sales and market share in selected countries/regions

Figure 17 Overview Biggest Metropolitan Areas, 2014 and 2030

Figure 18 Tesla BEV Platform, Second Generation

Figure 19 Smart Electric Drive – Example Conversion Design

Figure 20 Entry chance EV market

Figure 21 Computer animation EHANG AAV

Figure 23 Comparison Electric Vehicles

Figure 24: Strategic Group Map for global auto industry

Figure 25 BMW Brands and Sub brands

Figure 26 BMW Group Concepts Strategy Number One > Next

Figure 27 Udacity Self-Driving Car Engineer Nanodegree Industry Partners

Figure 28 Tesla Masterplan Illustration

Figure 29 Tesla Super Charger Network Europe

Figure 30 Tesla Model S Interior

Figure 31 Model S P85 - Basic Parts

Figure 32 Tesla's Super Charger Station

Figure 33 Typical Tesla Store Based in City Location

Figure 34 Tesla’s Portable Showroom in a City

Figure 35Financial Performance Tesla Motors, 2010-1015

Figure 36 Share Price Development BMW Group and Tesla Inc., 2012-2016

List of Tables

Table 1 The VRIO Framework

Table 2 Key Success Factors Auto Industry

Table 3 BMW Key Figures Automotive Segment

Table 4 SWOT Analysis BMW Group

Table 5 Tesla SWOT Analysis

Table 6 Tesla's R&D spending of total revenue

BMW and Tesla have different strategic approaches to the upcoming changes in the industry. BMW, as many other OEMs are aware of future challenges and disruptive forces and have much more resources to manage required investment in R&D than smaller start-ups. However, disruptive forces come from lower functionality and low-cost products that are usually overseen by dominant firms in an industry. This research analyzes these two automotive companies by using the common strategy analysis tools. First, the firm’s external environment is analyzed by using the PESTEL analysis, describing relevant trends that affect the strategic decision of the two companies. An industry overview with future projection is provided. Secondly, the internal analysis is performed. SWOT analysis and the VRIO framework form the basis to define the strengths, weaknesses, unique recourses and capabilities of BMW and Tesla. The following chapter summarizes the results and key findings from this research. The conclusion chapter gives an overall discussion of the most important findings emerging from the analysis with regard to the business operations and the existing business models of the two car manufacturers. Furthermore, important implications for the adaption and adjustment are discussed.

Key Words: Automotive Industry, BMW, Tesla, Strategic Management, Business Model, VRIO, SWOT, Porter’s Five Forces, Electric Vehicles, Autonomous Driving, Car-Sharing, Ride-Sharing, Connected Mobility

1. Introduction

The auto industry is a global multi-billion-dollar industry with many large players and a highly competitive business environment. The automakers have to continuously innovate their products to keep market position and customers. The next decade is going make this competition even harder. Globalization leads to an increasing competition among all automakers. The auto industry is considered to be highly capital and labor intensive. New entrants have to make huge investments in R&D, production or sales infrastructure. However, the market entry barrier was lowered by the latest disruptive technologies and the increase of engineering services and contract manufacturers in the industry.

The current business model of carmakers is mainly based on selling internal combustion engine vehicles directly to customers. The industry is extremely competitive, caused by the maturity of this industry. “Dieselgate” by VW forced OEMs to rethink their strategy. Global sales of passenger cars reached over 70 million vehicles in 2015. Over the next decade, connected and autonomous vehicles will lead to another revolution in the automotive sector. The global market for autonomous driving hardware components is expected to grow from 400 million U.S. dollars in 2015 to 40 billion U.S. dollars in 2030. The emergence of autonomous, connected and smart vehicles will affect the whole industry and create new potential for business models and new competitors around individual transport. Car- and ride-sharing, driven by socio-cultural changes, will also affect the auto industry forcing the business leaders to start questioning the existing business model. The shift will likely affect far more than automakers, but the auto industry will probably go through the biggest changes first.

Connected, autonomous and shared cars will lead to fewer drivers and less cars. Higher environmental legal requirements force OEMs to develop sustainable vehicles. Successful automakers such as BMW have to consider alternatives for their existing business models to ensure future profits. BMW started a car-sharing Joint Ventures years ago and built a new sub brand, BMWi, to develop electric vehicles. However, these two business units are not profitable yet. The EVs are far away from being a mass product. BMWs rival in the EVs market, Tesla Motors Inc., has a completely different business model. Tesla is selling a mobility solution instead of single electric cars. The US automaker sells connected EVs, builds and operates a charging station infrastructure and provides energy storage systems. Tesla recently introduced its latest model – the Model 3 – which had a huge impact in the automotive industry. Tesla is going to produce this $35.000 model with a high range and hopes to create a mass market for EVs. To develop its advanced products and services, Tesla is forced to continuously reinvest in R&D as well as in charging infrastructure. 13 years after foundation Tesla attracts a lot of customers but still generates high losses.

1.1 Problem definition

The purpose of this paper is to perform an analysis and evaluation of BMW’s and Tesla’s strategy for the upcoming technological and socio-cultural changes in individual transport. Tesla is a young, flexible start up from the United States designing, manufacturing and selling EVs. BMW is a German automaker with a 100-year expertise in vehicle manufacturing of a broad range of vehicles and a big organization. Will BMW, after 100 years as car manufacturer, become a mobility provider and stop producing cars or remain a leading car manufacturer? Will the auto industry go through same disruptive transformation as the mobile phone industry 10 years ago? Who has the better strategy for the decade of big changes when cars become autonomous, connected and smart?

This work analyzes, structures and compares the strategies of BMW and Tesla by using strategic management tools. The comparison between BMW and Tesla is a challenging task. The two companies are completely different in its business culture, structure and existence. Tesla, a Silicon Valley Start-Up with an approach to change the world of mobility. And BMW, a 100-year global player, with a strong brand and very successful traditional business model. Both companies are public corporates. However, collecting relevant data is quite challenging. Although both companies publish their financial statements on a regular basis, comparison of R&D expenses for instance is hard to perform. In addition to that, evaluation of data such as Marketing activities is hard to measure.

Issues of Research:
-Complexity of research object: try to get a holistic view on the research companies can overload the researcher
-Dynamics of the research object: The research objects are constantly developing
-Methodological difficulties: It is difficult to measure the success of a strategy since the effect of single strategic decisions can’t be evaluated isolated. The date of the impact of a strategy is hard to define
-Bias of the researcher: Personal and cultural background of the researcher often unconsciously affects the research result

My focal point during the MBA course at FOM in Munich was Strategic Management. The purpose of this paper is to perform an analysis and valuation of BMW’s and Tesla Motors’ strategy for the upcoming technological and social changes. Tesla is an automaker from the US designing, manufacturing and selling EVs. BMW is a German automaker with a 100-year expertise in vehicle manufacturing of a broad range of vehicles. The main research questions in this work are:

- What are the strategies of BMW and Tesla Motors for the autonomous, connected and smart mobility era?
- Are startups better capable of disrupting the auto industry and adapt future changes?
- Will BMW become a mobility provider and stop producing cars in the net 15 years?
- Will established OEMs transform their current business models successfully?
- Do the OEMs have to develop themselves to from car manufacturer to integrated, sustainable mobility service supplier?

1.2 Methodology

This thesis focuses on passenger cars only. The industry analysis is done without trucks, busses.

- Define the auto industry competition
- Analyze the auto industry using the five forces framework
- Articulate the three generic strategies
- Draw strategic implications

The two carmakers are analyzed by conducting a strategic analysis, where different strategic models are applied and different industry drivers analyzed from a historical and future perspective. The results and key findings from these analyses act as a foundation for forecasting the future performance of the two automakers. Empirically, the thesis relies on secondary data such as annual reports, academic books and articles, research papers, news articles from approved websites and data from the Bloomberg and Yahoo Finance service database.

We think we can generate a better understanding of the coherence of the theory applied and possibly answer our research questions by using qualitative data. We therefore exploited a qualitative method and gathered the corresponding information for the theoretical framework in a systematic way through empirical sources, such as the examples which are outlined below:

- Books: in the field of Strategic Management, Innovation Management, Economics, Automobile Technology
- Journals: Harvard Business Review, The Wall Street Journal
- Magazines: Manager Magazin, Forbes, The Economist, Electrek, Autobild, Automotive News, Carmagazine, AutoVolt
- Consultancy Reports: PwC, Roland Berger, McKinsey, Oliver Wyman, Boston Consulting Group, Deloitte
- Newspapers: Handelsblatt, Wirtschaftswoche, Bloomberg Newsweek, VDI Nachrichten, Der Spiegel, Süddeutsche Zeitung
- Databases: Statista, Yahoo Finance, Bloomberg, OICA, KBA
- Reports: Annual reports of BMW and Tesla from different years, Annual SEC Reports on Form 10-K
- Official- and governmental announcements
- Press Releases: Official Press Releases, company blogs, company social media posts etc.

The sources used stand for quality and credibility. However, the up-to-datedness of the topic, a lot of online sources were used to cover future projections.

2. Theoretical Background and Literature Review

This chapter introduces essential terms, concepts, tools and models that were used in this research. The author chose specific tools to perform the comparative strategy analysis. Relevant strategic tools were chosen, that could be performed properly within the short time constrains of three months. The last part of this chapter describes further literature related to the topic.

2.1 Strategic Management

“It is not the strongest of the species that survive, nor the most intelligent, but the one that is most responsive to change” – Charles Darwin

The objective of the Thesis is to perform a comparative analysis on company strategies. This makes Strategic Management main part of this work. To be able to analyze a firm’s strategy it is mandatory to understand the concepts of business strategy and competitive advantage. All companies have a certain business strategy, even if it is unstructured and official public. The term “strategy” is not defined exactly term in economics. According to (Volberda, et al., 2011, p. 7), “a strategy is an integrated a coordinate set of commitments and actions to exploit core competencies and gain a competitive advantage.” This definition considers a set of alternatives and a firm’s commitment for a specific strategy. Fred R. David describes strategic management as the “art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives.” As this definition implies, strategic management integrates management, marketing, finance, production, research and development. (David, 2011, pp. 5-7). Blatstein explains that strategic management is not about predicting the future. It is more a tool for preparing the company for future challenges and define the steps needed to implement a strategy. By doing so, a firm will achieve acompetitive advantage. (Blatstein, 2012, pp. 32-36)

In general, strategic management deals with three basic questions:

1. Where is the organization at the moment?
2. Where does it want to go?
3. How will it get there?

This thesis observed all three leading perspectives on strategy in the field of strategic management. The industry-based view is used to understand the environment of BMW and Tesla. The resource-based view gives an insight in the firm’s internal resources and capabilities. The institution-based view describes the formal and informal constrains created by institutions.

Intangible resources, competitor and business environment analyses in strategic management are discussed by using established tools of strategy analysis. The purpose is not to cover the topic strategic management details or to craft and execute strategy. The aim is to use the tools to analyze a firm’s strategy and make implications for future. Therefore, tools as BCG matrix, McKinsey 7s framework and GE-McKinsey Matrix aren’t used in this research.

Strategic management uses a set of tools to analyze, create or execute strategy. The tools used in this thesis, are presentenced in the following chapters. Of course, strategic management tools are part of an ongoing evolution.

There are three leading perspectives on strategy in economics(Barney & Hesterly, 2015, pp. 26-30):

1. Industry-based view
2. Resource-based view
3. Institution-based

2.2 External Analysis Framework

2.2.1 The Macro-Environment

The Macro-Environment affects a company’s strategy significantly. To analyze the strategically relevant components of a firm’s external environment the PESTEL framework was used. PESTEL analysis is an analysis of the political, economic, social, technological, environmental and legal factors in the external environment of an organization, which can affect its business. (Thompson, et al., 2010, pp. 56-58)

illustration not visible in this excerpt

Figure 1 Components of a Company's Marcoenvironment^[1]

PESTEL analysis is an effective and simple tool used to identify key external forces that might affect the organization. The result of the PESTEL analysis is an understanding of a firms’ environment. This analysis for BMW and Tesla is performed by two steps. First, information is gathered about political, economic, social, technological, environmental and legal changes in the auto industry. Secondly, PESTEL factors are identified that represent opportunities or threats.

2.2.2 Competitive Forces - The Five Forces Framework

The industry-based view is practiced by the following tool. The competitive analysis of the automotive industry is performed by using Porter’s Five Forces. The analysis shows the competitiveness and attractiveness of a particular industry. The major forces in the industry are identified by looking at

- Rivalry among competitors
- Threat of potential entry
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of substitutes

The analysis is performed by identified and evaluating the factors that influence future strategic decision of BMW and Tesla. The following figure illustrates the competitive forces in an industry. (Peng, 2009, pp. 37-45)

illustration not visible in this excerpt

Figure 2: The Five Forces That Shape Industry Competition^[2]

2.2.3 Key Success Factors

This framework allows to identify the key success factors in an industry. These factors influence a firm’s ability to compete against rivalry. According to Robert Grant, this framework should answer to basic questions:

-What do customers want
-What does a firm need to do to survive competition (Grant, 2016, pp. 82-85)

The key success factors will be identified and analyzed in this paper for the automotive industry. This research covers the relevant factors for passenger cars only that affect BMW and Tesla.

2.3 Internal Analysis Framework

2.3.1 SWOT Analysis

The SWOT analysis is a basic strategy tool, that deals with internal S trength, W eakness, environmental O pportunities and T hreats. The industry-based view focuses on the external opportunities and threats, whereas the resource-based view deals with the internal strength and weakness. (Peng, 2009, pp. 34, 64) SWOT analysis involves information about internal and external factors which have, or may have, an impact on business. SWOT is a framework that allows managers to synthesize insights obtained from an internal analysis of the company’s strengths and weaknesses with those from an analysis of external opportunities and threats. Strengths and weaknesses are internal oriented – a company can directly influence and manage them. Opportunities and threats are external. A firm can only project them react passively. SWOT is often used as an strategic tool due to its simplicity and focus on the key issues. The aim of SWOT is to identify the strengths and weaknesses that are relevant in meeting opportunities and threats in particular situation.The tool is simple and practical to use and helps to identify future goals. Although the tool is very helpful and used widely, there is critics in using the tools properly. The limitations of the tool are given if strengths, weaknesses, opportunities and threats aren’t described properly or too broad. Also, factors need to be prioritized and factors have to be facts. The SWOT analysis is used to analyze strengths, weaknesses, opportunities and threats of BMW and Tesla. (Thompson, et al., 2010, pp. 106-116)

2.3.2 Generic Competitive Strategies

According to Porter there are three generic strategies that firms can choose to cope with the industries’ five competitive forces. Porter introduces his three generic strategies as a choice for firm’s to strengthen its positon relative to the five competitive forces. Overall cost leadership strategy is focused on competing on low cost and prices. The Differentiation focusses on products and services that customers see valuable and different from completion. The Focus strategy serves the needs of a particular segment of an industry. (Porter, 1980, pp. 34-40) Company use a strategy to gain competitive advantage. The figure bellow illustrates the strategic orientation in relation to strategic advantage and strategic target of a firm. Strategic targets concentrate on a certain segment, while strategic advantages focus on reaching either a low-cost or unique market position.

illustration not visible in this excerpt

Figure 3 Porter’s Three Generic Strategies^[3]

A focus-concentrated strategy requires a set of capabilities and resources that are used in cost leadership and differentiation strategies. According to Porter, firm’s that are not able to define a strategy among the three generic strategies risk to be be stuck in the middle.(Porter, 1980, pp. 34-46) A firm has a competitive advantage when its strategy is hard to copy by competitors or too costly to imitate. The following VRIO framework describes a firm’s internal resources and capabilities. (David, 2011, pp. 5-11)

2.3.3 VRIO Framework

VRIO framework is the tool used to analyze firm’s internal resources and capabilities to find out if they can be a source of sustained competitive advantage. The framework was originally developed by Barney, J. B. (1991) in his work “Firm Resources and Sustained Competitive Advantage”. The author identified four attributes that firm’s resources must possess in order to create sustained competitive advantage. According to Barney’s approach, the resources of a firm must be valuable, rare, imperfectly imitable and non-substitutable. Originally the framework was called VRIN and improved later to the today’s known VRIO framework, which was the improvement of VRIN model. VRIO analysis stands for four questions that ask if a resource is: valuable? rare? costly to imitate? And is a firm organized to capture the value of the resources? A resource or capability that meets all four requirements can bring sustained competitive advantage for the company. (Barney & Hesterly, 2015)(Blatstein, 2012)

This framework is a resource-based view on strategy and focused on

- Value
- Rarity
- Imitability
- Organizational

The framework is used as analytical tool by answering four basic questions related the for attributes. (Peng, 2009, pp. 71-75) There VRIO framework defines two types of resources: tangible and intangible. Tangible assets are physical things like buildings and land. Companies has easy access to these resources. Tangible assets are seldom the source of competitive advantage. Intangible assets, such as brand reputation, intellectual property, unique business model or unique managing style, can’t be bought easily. They are often source of sustained competitive advantage. Therefore, the research primarily analyses intangible assets of BMW and Tesla.

The following table is adopted from Frank Rothaermel’s “Strategic Management”. It shows the questions to the four attributes that define the character of a firm’s resource or capability. (Rothaermel, 2012, p. 91) If a resource or capability fulfills all for criteria, it will form a sustain competitive advantage.

illustration not visible in this excerpt

Table 1 The VRIO Framework^[4]

2.4 Related Work and Additional Concepts

Industry Life-Cycle Model and Sailing-Ship-Effect

In the 1970s, The Auto Industry Life Cycle was explained by Abernathy and Utterback. The automotive industry is one of the biggest industries word-wide and has a 120-year history. Automotive companies are often MNEs acting globally. This creates a huge topic for researchers. Most work was published since the late 1970s starting with the original industry life-cycle model (Abernathy & Utterback, 1978). The pattern of the Abernathy and Utterback life-cycle model, or product-process model, works well in the early days of the auto industry. Figure two shows the product innovation curve together with the process innovation curve. This model explains the auto industry’s innovation by a hypothetical pattern. In the beginning of the disruptive innovation “car” the product innovation rate is very high whereas the manufacturing and processes are on a basic level. (Fujimoto, 2014) p.9-10. This relation changes when a “dominant design”, the model T by Ford occurs. It sets a standard in this product class and the innovation focusses on processes to achieve cost-efficient products. Fujimoto criticizes, that this model doesn’t explain the flatten effect of both curves after the 1930s. Fujimoto explains this effect with his model by characterizing the auto industry as “rapid incremental innovations,” which from the “long tail of the life cycle”. This is driven by technological advancement instead of the end of innovations or the beginning of another industry life-cycle. Fujimoto describes the innovations of the past few decades in the automotive industry as Sailing-Ship-Effect. Indicators for Sailing-Ship-Effect in the Auto Industry are for instance Drivers Assistant or the downsizing engines.

illustration not visible in this excerpt

Figure 4 The Automobile Industry Life Cycle - A Hypothetical Pattern^[5]

Disruptive innovation is the opposite of incremental innovation. There was a significant consistent pattern of failure of big companies in the past. Leaders in an industry failed to protect their leadership when the market or technology changed. Clayton describes that companies fail although they are listening to its customers. The question Clayton dealt with is: How can small, new companies beat incumbents in its successful field? It works through disruptive innovation. The Disruptive Innovation Model, illustrated below, contrast product performance with customer demand. Big companies focus on sustaining innovation by upgrading existing products to attract existing customers. After a while, these companies start to ignore the needs of their customers with lower budgets. The don’t offer low-cost alternatives to its existing products. That’s the point where start-ups are come into play. They fill the gap with simpler and basic products as low-cost alternative. Incumbents react with adding features to their products that customers don’t really need or want to pay for. In the meantime, disrupters improve products and services and address a wider customer group and beat the incumbents in market share and product quality. The incumbent notices this development too late. According to Christensen, the only way for established companies to fight back is by launching their own disruptive innovations. This should be separate units or projects in the organization to succeed. Disruptive innovation creates new markets and reshapes existing ones. (Christensen, 1997)(Christensen, 2011) (Harvard Business Review b, 2015)

illustration not visible in this excerpt

Figure 5 The Disruptive Innovation Model^[6]

This research uses the theory of disruptive innovation to analyze the strategy of BMW Group and Tesla.

3. Analysis of the Automobile Industry

This chapter shows the analysis of the automobile industry. The strategy analysis tools introduced in the previous chapter are used to analyze the macro-environment, the industry competition as well as the competitors and markets in the automotive industry. This thesis is focused on passenger cars as defined by OICA. Light commercial vehicles, Heavy trucks and buses aren’t part of this research

3.1 Industry Overview

3.1.1 Market Size and Growth Rate

Global sales of passenger cars reached 72.4 million vehicles in 2015. Along with China, the United States forms by far the largest automobile markets worldwide, both in terms of production and sales. In terms of revenue, Toyota, Volkswagen and General Motors lead the list of biggest passenger car makers, while the automotive supplier industry is dominated by Bosch, Continental, Denso and Magna. The total global revenue pool of the automotive industry in 2015 was estimated to 6,384 EUR billion with a global profit pool of 332 EUR billion. Roland Berger found out that 34.7 EUR billion of this global revenue was generates by car manufacturers^[7].

illustration not visible in this excerpt

Figure 6 Global Car Sales 1990-2016^[8]

Deloitte even defines the “extended” auto industry revenue with $2 trillion by adding insurance, retail, media advertising or energy service companies in the equation of total automotive industry profit pool. (Deloitte University Press b, 2015, p. 3) Today, China is already the biggest auto market with 20 million cars sold in 2015 followed by the US with 17, 4 million cars sold.

Abbildung in dieser Leseprobe nicht enthalten

Figure 7 Worldwide automobiles sales in million by countries, 2015^[9]

The following chart shows the rapid growth of Chinese automotive market of the past decade. China overtook the US as biggest global auto market. Ever since, China experienced high growth rates and even continues to grow while US, German and Japanese market are projected to remain mature markets.

illustration not visible in this excerpt

Figure 8 Passenger car sales in million, selected markets^[10]

The increased importance of China is also seen in the revenue of the leading automotive manufacturers. Due to the joint-venture regulations and massive growth in the domestic market, Chinese companies gain big revenues. However, western automotive manufacturers are still leading in both, annual revenue and total vehicle production. The market is dominated by VW, Toyota, GM and Hyundai which are operating with several brands.

illustration not visible in this excerpt

Figure 9 The world’s biggest automobile producers by volume, 2014^[11]

3.1.2 Transition to Autonomous Driving

For the Independent Andrew Griffin describes on “How owning a car might soon become as old-fashioned as owning a horse: “Experts disagree on how long the journey will take – but not much about where we’re going” (The Independent , 2016)

Over the next decade, Internet-connected and autonomous vehicles will hit the market. The global market for AV hardware components is expected to grow from $400 million in 2015 to $40 billion in 2030. (Wirtschaftswoche c, 2015) The emergence of AVs as a mass product is key to carmaker’s strategy. For managers it is also important to understand what “Self-driving” exactly is and how it is defined legally. In a brochure, the German BMVI^[12] gives “uniform definitions of the various levels of automation and forms of connectivity”. There different definitions of the levels of automation. Governments in developed countries started to harmonize the stage to create standardized regulation for companies to implement new AV technologies and services. This is common with other regulatory in Europe as well as USA (Bundesministerium für Verkehr und digitale Infrastruktur, 2015, pp. 5-7)

1. Driver Assistance Systems
2. Partially automated driving
3. Highly automated driving
4. Fully automated driving
5. Autonomous driving

These single steps are illustrated in the following figure:

illustration not visible in this excerpt

Figure 10 Five levels to full automation of driving^[13]

Other studies show similar steps and graduation towards fully autonomous driving. McKinsey splits the technological changes in eras and projects the development from a market perspective view. Era 1 represents the actual situation where fully autonomous vehicles are developed for the consumers. In era 2, the consumers begin to adapt this technology and consume the products. In the last era, starting approximately from 2035, AVs become the “primary means of transport”. (McKinsey&Company c, 2015) The projections by Morgan Stanley foresee the technology penetration even earlier. By 2025 technology for AV will be fully adopted according the consultants of Morgan Stanley:

Abbildung in dieser Leseprobe nicht enthalten^[14]

To a high extend, the market penetration of AVs depends on the general acceptance and behavior change of customers: “Not all of those problems are technological, and many of them relate to the much harder problems of city planning and managing people. Those could be solved easily – but expensively, and by essentially getting rid of pedestrians and making every road into a motorway.” (The Independent , 2016) Volvo as the first automobile manufacturer announced in 2016 to cover all risk related to its future AVs: "Volvo will accept full liability whenever one of our cars is in autonomous mode. We are one of the first car makers in the world to make such a promise. " Hakan Samuelsson^[15] Automakers already test AVs on the road. Among established OEMs, non-automotive companies like Google and EV Start-ups like Zoox are testing AVs intensively in California. The figure below shows the number of cars and drivers per company in California:

illustration not visible in this excerpt

Figure 11 Companies testing SDCs in California, USA^[16]

3.1.3 New Mobility Business Models

In 2007 Steve Jobs, the CEO of Apple, introduced the iPhone to the world and said “this will change everything”. On January 9, 2007 Apple introduced the iPhone. The iPhone was a revolutionary product and it changed the way smart phones look in work. Apple, a company that has produced a mobile for the very first time, changed the whole industry by developing a product from the customer experience perspective. Apple embedded the iPhone in an ecosystem and created a “basic device” that was used as a platform. The user was apple to install apps and personalize the device.^{[17] [18]}

If more and more people change to mobility on demand services, user experience and digital platforms will become very important. Monetizing car data - New service business opportunities to create new customer benefits (McKinsey&Company d, 2016) The Boston Consulting Group together with World Economic Forum worked together on a report to investigate the potential role of AVs for future urban mobility. The research involved consumers, urban officials as well as policymakers worldwide. According to this BCG’s report “SDVs will ultimately be one component of a larger, integrated mobility ecosystem” (Boston Consulting Group, 2016, pp. 14-15). In 2025 growth will be from added value rather than from selling more cars. According to IBM growth can be generated through collaboration with other industries; creating new services-based offerings; and leveraging disruptive technologies not related to vehicles. (IBM Institute for Business Value, 2015) The decline in private and commercial car ownership will be catch up the “Robocabs”, thus autonomous vehicles operating as taxis. Whereas in 2015 74,2% of km driven globally where ownership based vehicles, this is going to decline to under 50% by 2030. However, mobility demand will increase and Robocabs share on total mobility will grow rapidly. According to Roland Berger, OEMs have to consider that decline in automobile sales and realigned their strategy to new mobility services. The following figure illustrates the rise of robocap and the decline of car ownership. It also shows that car-sharing and ride-sharing services will grow until 2025 but also get less important as AV achieves high market penetration (Roland Berger b, 2016).

illustration not visible in this excerpt

Figure 12 New Automotive Ecosystem, in km driven worldwide^[19]

The automotive experts of Ronald Berger, a Munich based consultancy, identified in its July Automotive Insights report five archetypes of companies in the future automotive environment:

1. Device Component Manufacturer
2. Device Manufacturer
3. Infrastructure Component Provider
4. Infrastructure Players
5. Mobility Service Provider (MSP)

Roland Berger defines the nature of future automotive company by its role in the value chain. Since the value chain and future profit pools shift from car selling business model to mobility services, OEMs should seek to transform their business models to integrated “mobility service provider”. (Roland Berger b, 2016, pp. 16-24)

3.1.4 Future Profit Pool

“Uber has become a role model of how disrupting individual mobility market works. Without owning a single car or employing drivers, it shook up traditional taxi transportation all over the world. And this is only the beginning.” Christian Freese, head of Uber Germany (Roland Berger d, 2016, p. 24) The shift in the automotive industry will also affect the current profit pools of the established companies. While OEMs are developing EVs and AVs, new mobility models are already entering the market. Most are using pay-per-use models such as car or ride sharing. These attracts big investments and high growth rates. E-hailing services as UBER have had impressive growth in terms of annual investment and market penetration. (McKinsey&Company b, 2015) Roland Berger published the average EBIT margin of some selected industries. The EBIT margin in the passenger car industry are small compared to other industries like healthcare, Machinery or telecommunication services. The EBIT margin had an average of 11% throughout the past decade. This value is expected to decrease due to massive invest in electric, connected and automated vehicles (Roland Berger b, 2016).

illustration not visible in this excerpt

Figure 13 EBIT margin comparison industries - selected industries average^[20]

In general, the outlook for the automotive industry profits project an increase in total revenue pool by 2025. After the emergence of AVs in the mass market, the total revenue of the industry will decline to 7.495 EUR bn. AVs will lower the operating costs of mobility services by replacing the driver, improving serviceability and increasing the operating time. The figure below illustrates how future revenue pool will shift from car manufacturing and sales to mobility providing services.

illustration not visible in this excerpt

Figure 14 Revenue Projections Auto Industry^[21]

3.2 The Macro-Environment

The Trend Compendium is a global trend study compiled by Roland Berger Strategy Consultants from 2011. It describes seven megatrends that will shape the world over the next 20 years. (Roland Berger c, 2011)

1. Changing demographics
2. Globalization and future markets
3. Scarcity of resources
4. Climate change
5. Dynamic technology and innovation
6. Global knowledge society
7. Sharing global responsibility^[22]

In its study “The future of Mobility”, Deloitte consultants found five converging major drivers and trends that will shape the future of the automotive industry. The convergence of these trends and forces in the next 10 years will challenge the current carmakers more than everything in the past 100 years before. According to Deloitte, the electric powertrain will hit the mass market and enable energy efficiency, low emissions and new vehicle design. Lightweight materials will make vehicles lighter without sacrificing safety. Integration of communication technology and Internet of Things will enable the vehicles to be fully connected vehicles. Vehicle to vehicle (V2V) and vehicle to infrastructure (V2I) will integrated in high volume cars. Autonomous Vehicles will hit the market technologically within the next decade. Legislation will create legal environment to operate AVs on roads. The last driver mentioned in the study is the change in customer’s habits. Young adults won’t be interested in owning cars rather than going for a “pay-per-use” personal mobility model. Thus, high capital investments in cars will decrease while mobility still increases. (Deloitte University Press b, 2015) AVs will most likely occur in cities first and lead to fewer accidents, less traffic and lower mobility costs. (Boston Consulting Group, 2016, pp. 6-11)

Whereas mega trends like globalization, demographic change or scarcity of resources are well known and occur one by one, these five changes in the automotive industry of the next 10 years happen simultaneously. All trends affect the automotive industry and automaker’s business strategies. The implications for strategic realignment of automakers are discussed in the following chapters. The general environment consists of a wide range of trends and forces that impact a firm’s strategic decisions. In this research the PESTEL analysis was used to define the environment of BMW and Tesla. Not every external actor affects the organization. This PESTEL analysis focused on the external factors for EVs, AVs and connected. This macro-economic factors are conditions which a company does not control. This section discusses and identifies external factors that are likely to affect BMWs and Tesla’s performance in terms of profitability and risk.

3.2.1 Political Factors

There is a wide range of political factors that affect BMW Group and Tesla Motors in different manner. For example, stronger CO2 emission laws in EU legislation are major political factors that affect BMW manufacturing. Some countries already plan to forbid Diesel and Gas cars in cities. Norway plans to prohibit sale of ICE cars from 2025 which would affect BMWs currently developed product line.(Manager Magazin c, 2016) The political stability in emerging markets such as China, Russia and Brazil is an additional political factor the two carmakers. Political instability in these countries can have negative effects on sales. Additionally, investments already taken in these countries would be under high risk.^[23] China is, for BMW and Tesla, by far the most important market in future. The political stability is given. However, the government could prefer domestic companies. Also, taxes and duties in domestic and foreign countries can affect the auto industry. Free trade agreements are opportunities for BMW and Tesla that make business easier. Free trade agreements as CETA or TTIP can improve business operation abroad and lower cost. Governmental support for ecofriendly products would be additional opportunities.

3.2.2 Economic Factors

The biggest markets for EVs are China and USA. Economic growth in China is projected to go down from 6.5% in 2016 to 6.2% by 2017^[24]. Compared to the US and EU growth this is still significantly high. US GDP growth in 2016 will be 1.8%. The economy will grow slightly slower than 2015's growth rate of 2.1%.

[...]

---

^[1] Source: (Thompson, et al., 2010)

^[2] (Porter & Heppelmann, 2014)pp.8-23

^[3] Source: Figure according to Porter, 1980, p.35

^[4] Source: Adopted from Rothaermel

^[5] (Fujimoto 2014) p.9

^[6] Source: Christensen, 1997.

^[7] Source: Roland Berger

^[8] Source: Statista, https://de.statista.com/statistik/daten/studie/30701/umfrage/umsatz-in-der-automobilzulieferindustrie-seit-1990/

^[9] Source: Statista, http://de.statista.com/statistik/daten/studie/164769/umfrage/groesste-automaerkte-weltweit-nach-pkw-neuzulassungen

^[10] Source: Statista, https://www.statista.com/statistics/257660/passenger-car-sales-in-selected-countries/

^[11] Source: Statista, http://de.statista.com/statistik/daten/studie/154089/umfrage/weltweite-automobilproduktion-nach-herstellern

^[12] Federal Ministry of Transport and Digital Infrastructure

^[13] Source: ZF Friedrichshafen, corporate website, http://www.zf.com/corporate/de_de/homepage/homepage.html

^[14] Source: Morgan Stanley, via https://medium.com/basic-income/self-driving-trucks-are-going-to-hit-us-like-a-human-driven-truck-b8507d9c5961

^[15] Volvo Car Group President and CEO

^[16] Source: Bloomberg, compiled from California Department of Motor Vehicles, May 2016

^[17] Source: MacWorld 2007, San Francisco

^[18] Source: Apple Inc., corporate website

^[19] Source: Roland Berger Automotive Competence Center, 2016, p.18

^[20] Source: Roland Berger, data for period 2005-2015

^[21] (Roland Berger Automotive Competence Center, 2016)p.19

^[22] Source: Roland Berger Strategy Consultants , 2011

^[23] BMW is invested in China and has JVs, BMW Group, corporate website

^[24] Source: OECD, https://data.oecd.org/gdp/gross-domestic-product-gdp.htm