Introduction
Autonomous vehicles (AV) are a new trend in the car manufacturing industry, promising an increased safety for the consumer and additional easiness for drivers. This technological development will transform the industry and will require car manufacturers, including BMW, to adjust their strategy. This paper will analyze the case study “Future of the autonomous automobile: A strategy for BMW” and provide an analysis of BMW’s external environment.
BMW’s Current Position in the Market
BMW is a German-based care manufacturer producing luxury vehicles. Established in 1919, this company produced aircraft engines and motorcycles, later turning to car manufacturing (Groth, Ferrero, & Malyshev, 2017). The main competitors include fellow German manufacturers Audi and Mercedes-Benz, and Japanese Lexus. The two defining qualities of BMW are the “superior engineering capabilities and its engines” (Groth, Ferrero, & Malyshev, 2017, p. 2). The company introduces vehicles with rear wheels that would turn to several degrees in 1990.
These examples show that, to this day, BMW is keen on innovation and creating luxury and technology-driven cars. Next, the company worked on introducing systems such as iDrive, which allowed the driver to control the car’s multimedia functions and later introduced safety systems, such as automatic braking and others. BMW iNEXT is set to become the manufacturer’s first AV, which will set a standard for the next generation electro cars of BMW (Groth, Ferrero, & Malyshev, 2017). Therefore, BMW is a luxury vehicle manufacturer, and its management is set a goal for developing new generation electric self-driving cars, with the first vehicle from these series introduced in 2021. The company is known for its dedication to developing cars with superior performance and technological qualities.
General Environmental Analysis
Political
The primary political issue of car manufacturers is the trade war between China and the United States. For example, China already enacted tariffs for the cars imported from the United States, issuing an additional 15% to 40% fee for manufacturers in response to the restrictions placed by the US government (Reiff, 2019). Interestingly, BMW has chosen a different geopolitical strategy when compared to its rivals. According to Groth, Ferrero, and Malyshev (2017), Toyota, Audi, and Mercedes-Benz applied for a permit to test their AVs on California’s roads, while BWM did not apply because they focused on partnering with Baidu, a Chinese company. Considering the trade war and the geopolitical tension between the United States and China, it appears that the current trend for car manufacturers is to choose between the two states and work on developing AV suitable for the local legal and socio-cultural environments.
For car manufacturers, this means that the auto parts and components made in China may be subjected to tax (Reiff, 2019). Alternatively, companies that actively work in the Chinese market may be banned in the United States. Tariffs applied to cars that are manufactured in the United States will impact the price and reduce the attractiveness of certain models for the consumers. Other global tensions include NAFTA agreements and Trans-Pacific partnerships, which will have a direct impact on car manufacturers. Hence, the trade tensions between China and the US will affect the suppliers of car parts and car manufacturers directly.
Environmental
The CO2 emissions and their reduction have become the main concern of the car manufacturing industry in recent years. In a way, this element of analysis is connected with the legal environment, since many states impose regulations on acceptable CO2 emissions and some introduce strategies for encouraging the use of electric cars, which produce no emissions. The United States, for example, have been declaring their strategic plans to tax heavily the cars that emit too many emissions, with a plan to subsequently reduce the number of emissions allowed each year (Coleman & Guillen, 2020). This means that car manufacturers will have to invest in not only AVs but also the development of electric cars or engines that emit small amounts of CO2, otherwise, their vehicles will become too costly for the consumer.
Social
In terms of socio-cultural environment, AVs will most likely face resistance at the initial stages because of the technology’s novelty. Next, the generational preferences will impact the consumer taste, for example, the aging population may prefer the comfort and reliability of the vehicles, while the Millenials, raised in the era of social media, will pay more attention to the technological capabilities of their cars. The Millennials raised in the digital age expect their cars to be digital as well, and the integration of technology into cars is becoming more and more efficient and will continue to affect the way cars are designed and produced (Eliot, 2020). This means that manufacturers who fail to integrate technology, which provides a connection to the driver’s smartphone or the Internet, will lose the interest of a large number of customers. Another important consideration is the corporate social responsibility of corporations, which is becoming more important to consumers.
Technological
The technological element is perhaps the essential one for the modern car manufacturers, who have little opportunity to set themselves apart from the competitors, with most offering similar models in terms of design or engine types. Notably, Groth, Ferrero, and Malyshev (2017) state that this era is the time of “coopetition” between corporations, for example, Google and Toyota work together on introducing an AV (p. 1). These blurred lines between competitors and companies from different industries are a necessity, considering that AV is a complex technology where not only the best practices of car manufacturing but also artificial intelligence and innovation must be applied. The AV market, in particular, “is getting crowded and shifting constantly” (Groth, Ferrero, & Malyshev, 2017, p. 1). Hence, a trend for investing in self-driving cars to introduce them to the market as soon as possible is the one that will guide the industry in the following years. Arguably, the trend in this domain is to develop emission-free self-driving cars and manufacturers, which are not already working on this technology will fall behind.
Economic
The economic impact of the COVID-19 pandemic is yet to be determined, but the professional’s prognosis is declining for all industries. For car manufacturing, the sales for new vehicles are expected to fall by 22% in the United States and by 26% globally (Wayland, 2020). Currently, it is unclear if the global economy will be able to recover quickly from this pandemic. Arguably, a trend for consumers will be to withhold major purchases, such as a car, for the time when the economy stabilizes, which will affect the profits of car manufacturers.
Legal
The legal environment is perhaps the most intriguing out of all analyzed domains for auto manufacturers since the new autonomous vehicles will require new regulations and policies to ensure that they are used safely by the customers. Some states and intergovernmental agencies have begun drafting laws for autonomous cars. For example, the National Conference of State Legislatures states that in 2018 15 states of the US have enacted AV-related regulations (“Autonomous vehicles,” 2020). Privacy regulations are another consideration since AVs rely on the collection of user data.
Summary
The car manufacturing industry is moving towards the development of cars that are safer, with technology responsible for most of the driving, and with minimum emissions. This means that trend is to have AVs powered by green energy, which is filled with the latest technology developments. However, the economic trends suggest that the manufacturers will face difficulty in the following year as the car sales will go down. Moreover, although the United States is moving towards creating an appropriate legal environment for AVs, some restrictions do not allow the use of these cars by the general public until the safety tests are completed. Hence, the implication is that the manufacturers are forced to invest in AV technology during times of crisis to fulfill the consumer’s expectations.
Porter’s Five Forces
Competitive Rivalry
Although AVs are recognized as the future of the automobile industry, not all car manufacturers are capable of investing in the development of self-driving technology at this stage. Luxury car manufacturers, or companies that partnered with technology giants, include Mercedes-Benz, Audi, Toyota, BMW, as well as Tesla and Apple (Groth, Ferrero, & Malyshev, 2017). Considering this, the competition in this field is moderate, but once the first AVs are introduced, it is likely to intensify. As Groth, Ferrero, and Malyshev (2017) state, the prognosis is that the autonomous car sales will reach 95 million by 2035 and that this technology will change the industry completely.
Supplier Power
The supplier power in the automotive industry, in general, is low, considering that most large manufacturers developed vertical supply chains, where the suppliers are owned by the brand. However, with the AVs, the supplier power is shifting, since the technology is underdeveloped and not in high demand, meaning that a limited number of companies can offer supplies for AVs. For example, Intel and NVIDIA are the only companies that produce CPUs and GPUs, essential components of image processing for AVs (Groth, Ferrero, & Malyshev, 2017). Hence, the supplier power is mixed, considering that manufacturers will have to source parts from the supply chains they have established and from new vendors to produce AVs.
Buyer Power
As at least four companies have already applied for a permit to test autonomous cars in California, the consumer already has some choice. Hence, buyer power is currently low, but as soon as the car manufacturers begin introducing their AVs, the buyers will have more options. Hence, in several years the buyer power will shift towards average or high because many automakers will offer their AVs to the buyers.
Threat of Substitutes
For a car manufacturer, the main substitute is another way of transportation. This can include public transportation or any other product or service that can transport an individual from point A to point B, however, since the case study is focused on AVs, the input from the consumer has to be minimal. Other means of transport, such as bicycles, eclectic scooters, do not offer the comfort and capabilities necessary for long-distance travel.
Arguably, the COVID-19 restrictions and the specifics of cities in the United States and the public transportation system make public transport unattractive, especially for consumers interested in luxury vehicles. Car sharing and cab services are a good substitute product for vehicles since a potential customer can choose to order an Uber or rent a car for a day or several days. However, in the long term, the cost of owning a car as opposed to renting or ordering a cab should be lower.
The threat of New Entry
The threat of new entrants in the domain of autonomous vehicles is an unlikely scenario, since, as the case study implies, this technology requires substantial investments. In some cases, car manufacturers partner with technology giants to reduce the cost, for example, Toyota and Google. Moreover, because this technology is new, the risks are high, making it an unattractive industry for new players. For a new company to enter the car manufacturing industry and introduce the self-driving vehicles, considering the underdeveloped laws and consumer uncertainty connected to the novelty of this technology, the investment, and resilience to risk of the enterprise has to be very high. Tesla, mentioned in this case study, is one of not many manufacturers that emerged in recent years, but the company disrupted the market by introducing a highly functional fully electric vehicle (Groth, Ferrero, & Malyshev, 2017). However, to this day, Tesla reports losses and no profits, with the executives intending on investing in technology until the manufacturer captures its market share (Chokshi, 2020). Therefore, the threat of new entrants in the AV industry is low.
Summary
Based on Porter’s Five Forces analysis, the car manufacturing industry is unattractive for the new players. The main issues include the low probability of a new entrant and the established connections between car manufacturers and their suppliers. Moreover, the consumers already have a good choice of vehicle, even when it comes to AVs, since many companies work on developing their models.
Strategic Group
The author used the strategic group mapping technique to create Table 1, where Mercedes-Benz, Audi, and Lexus are the main competitors of BMW. The three companies selected for the analysis are BMW’s main competitors offering luxury cars and investing in innovation. Table 2 is the comparative strategy analysis for the manufacturer’s current development and future plans.
- Mercedes-Benz focuses on a strategy for developing highly luxurious vehicles, electric AVs.
- Lexus: applied for a patent to test AV in California, partnered with Google.
- BMW: aims to partner with a Chinese company to test electric cars, aims to issue AV cars by 2021.
- Audi: is part of the Volkswagen group, works on adding AV features to all of its current models.
Table 1. Strategic group analysis
| High innovation (developing AVs) Low innovation (not working on AVs) |  |  | |
 |  | ||
| Quality & Performance High Low | |||
Table 2. Competitors’ strategic group analysis
Conclusion
In conclusion, BMW is well prepared to cope with strategic threats because the company has a history of developing innovative solutions, and its management already invests in the development of AVs. One issue that BMW will face is the political tensions between China and the United States and the economic effect of COVID-19, which will adversely impact all car manufacturers. BMW is well prepared to capitalize on the opportunities of the car manufacturing industry since they prepare to release their iNEXT fully autonomous model. BMW’s position against the competitions, however, does not provide the manufacturer with an apparent competitive advantage. Audi, Mercedes-Benz, and Lexus all work on introducing their versions of AVs, and it is likely that the technologies offered by the manufacturers will be very similar.
References
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Chokshi, N. (2020). Tesla posts $105 million profit for quarter, extending rebound. The New York Times. Web.
Coleman, Z. & Guillen, A. (2020). Trump’s climate change rollbacks to drive up U.S. emissions. Politico. Web.
Eliot, L. (2020). The reasons why Millennials aren’t as car crazed as Baby Boomers, and how self-driving cars fit in. Forbes. Web.
Groth, O., Ferrero, E., & Malyshev, A. (2017). Future of the autonomous automobile: A strategy for BMW. Hult International Business School.
Reiff, N. (2019). What top 3 industries are affected by the trade war with China. Investopedia. Web.
Wayland, M. (2020). Led by US, global auto sales expected to plummet 22% in 2020 due to coronavirus. CNBC. Web.