GERMAN carmaker BMW (BMWG.DE) said it will focus on electric vehicles and automated driving and develop its software and technology services as part of a new strategy for the 100-year-old carmaker.
The emergence of rivals including ride-sharing company Uber (UBER.UL) and technology group Alphabet (GOOGL.O) which has developed its own self-driving car, has prompted BMW to rethink its traditional strategy of selling large powerful luxury cars.
“We are leading BMW Group into a new era,” Chief Executive Harald Krueger told journalists at BMW’s annual results news conference.
“To this end we leverage innovative technologies, comprehensive connectivity and zero-emission mobility. All of these need to be industrialized, bearing in mind our business responsibilities, and in a sustainable manner, which in itself is another great challenge,” he added.
Reuters reported that BMW Group aimed to achieve a pretax margin of at least 10 percent from 2017 to 2020 by pushing digital connectivity, autonomous cars and developing businesses including motorcycles and financial services.
Analysts at Evercore ISI welcomed the new strategy. “BMW, in our view, can stay in the top of automotive innovation leaders and outgrow global vehicle demand by spending 10 to 12 percent of its revenues in R&D and capex,” Evercore said in a note.
Shares in BMW rose 4.6 percent to 83.21 euros by 1145 GMT, outperforming a 2.1 percent rise by the STOXX Europe automobiles index .SXAP.
New technologies have created opportunities for the automotive industry, forcing the Bavarian carmaker to evolve its business beyond mechanical engineering towards becoming a software and technology company.
“The value creation is shifting from the actual hardware toward software and services,” Krueger said.
BMW said it would focus on developing the businesses of high-definition digital maps, sensor technology, cloud technology and artificial intelligence.
BMW will also push services including providing wall mounted electric car charging boxes and software programs to help drivers find a parking space with its ParkNow and ChargeNow services.
In addition, it will seek to maintain the high profitability of its cars business by boosting the number of high-margin luxury vehicles like the 7 series, and broadening the range of M performance branded cars.
At the same, time, BMW is looking at streamlining its portfolio of cars to focus on the most profitable models.
“We will take a hard look at both variants and equipment options,” Chief Financial Officer Friedrich Eichiner said, explaining that this helps reduce complexity in development, production and aftersales. Mini has reduced the range of its models to five, cutting three variants.
This new simpler production method will help achieve savings of more than 100 million euros over the coming years, BMW said.
Krueger hinted that BMW, which has outsold Audi (VOWG_p.DE) and Mercedes-Benz (DAIGn.DE) for the past 10 years, may be prepared to surrender the volume crown among luxury carmakers.
“I have always said that we don’t only look at volumes,” Krueger said.