SINGAPORE (July 22): BMW CEO Harald Krueger will bequeath a well-oiled machine when he steps down next year. The €44 billion ($67.2 billion) carmaker’s boss said on July 5 that he would not seek a second term after his current one runs out in May 2020. The big challenge for his successor — possibly production chief Oliver Zipse, according to Reuters — will be to tune up the company’s electric-vehicle strategy.
(Main image: The big challenge for Krueger’s successor will be to tune up the company’s electric-vehicle strategy)
Heading up the Munich-based company is one of the more desirable jobs in the struggling automotive industry. True, the company has had problems. First-quarter operating profit fell almost 80% from 2018, largely because of a provision for a possible European antitrust fine over alleged technology collusion with German peers. That followed a September profit warning, which Krueger blamed on intense price competition, following new emissions standards. Yet, BMW shares are trading at eight times 2019 earnings, using Refinitiv Smart Estimates, compared with 7.4 times for premium peer Daimler and 5.9 times for Volkswagen Group.
Rival-beating efficiency helps explain the premium. Analysts expect Krueger will this year turn 7.4% of its €99 billion of revenue into operating profit, while Daimler’s margin is forecast at 6.1%. Over the past three years, BMW’s selling, general and administrative costs were on average 9.7% of sales, according to Refinitiv data; Daimler and VW reported 11.4% and 13.1% respectively.
Still, an industrywide shift towards electric vehicles threatens BMW’s lead. Like most carmakers, BMW is investing in cleaner engines to meet European carbon-emission rules in the early 2020s. Yet, unlike VW, which is betting mostly on pure battery-powered electric vehicles, BMW retains what it calls “flexible vehicle architectures” covering fully electric, plug-in hybrid vehicles and combustion-engine cars. Hedging its bet will pay off if VW and others prove to be overoptimistic about demand for electric vehicles.
But BMW’s rivals plan to build greener cars by using a dedicated platform — industry jargon for reducing the number of different basic components and materials needed to produce a wide range of vehicles. That focus is likely to improve the profit margin on electric cars, whereas BMW’s more complex strategy involves higher costs. Krueger’s successor may have to refashion BMW’s electric-vehicle strategy with that in mind. — Reuters
