hult heat presentation presidio team 1 final

BMW Strategic Plan 2015-2035

Presidio Team 1

Executive SummaryOpportunity: Build strategic capabilities to

become a leader in the luxury autonomous car industry, with a focus on China

How: Position BMW as a leader in the next generation of innovation, collaboration, and automation through value chain integration, culture evolution, and strategic partnerships

Outlook: By 2035 sell between 3 and 6.7 million cars, with between 800K and 1.8MM in China. Market share of 40% globally, 1.3x relative market share in China

Global Trends Technology and automation are getting faster

and cheaper Global economy is uncertainIncreasingly regulated worldGrowing urban populationsLimitations on environmental resourcesIncreased concern regarding privacy and data

protection

Luxury Market Attractiveness: Similar

Across ScenariosSupplier

Buyer

EntrantsSubstitutes

Rivalry

0

5

Scenario 1Scenario 22015

The market for luxury vehicles doesn’t become significantly more or less attractive as we move forward into uncertainty

Global Attainable Market Total Car Market: 126M units

Luxury Auto market: 16.77M units

BMW’s Share of 40%: 6.7M cars

BMW’s fully autonomous cars: 5.0M units

BMW’s partially automated cars: 1.7M units

Total Car market: 119M units

Luxury Auto market: 9.8M units

BMW’s Share of 30.94%: 3.06M cars

BMW’s partially automated cars: 2.76 M

BMW’s fully automated cars: 0.3 M

Scenario 1 2035 Scenario 2 2035

Projected Chinese Sales Scenario 1: 1.81M Units

Projected Chinese Sales Scenario 2: 0.82M Units

Build on Our Advantages

Core Competencies: Branding, Innovation, Customer

Relationship

Capabilities: Branding, innovation, customer relationships, distribution, employee

satisfaction, engineering excellence

Resources: Technology, R&D, high quality labor, physical and financial capital,

engineering excellence

Strategy 2015-2035• AI Unit In-House• OS development Investment• Sensor Unit Specialization• Baidu partnership

Leader in Innovation

• Create agility: Faster, freer, more reactive corporate culture

• Guide posts indicate opportunities to pivotStrategic Agility

• Global presence with focus on China: Baidu partnership as leverage Targeted Markets

• Consumers who look for quality, innovation and status Loyal Consumers

• Product Portfolio: L2, L3 and L4• Outsource non-critical driving specialization• Time luxuriously well spent

Product Offering

Where We Play in the New Value Chain

Hardware Software OEM Distribution Maintenance

Hardware• Imaging

Sensors• DGPS• LIDAR• Processors• CPU – GPU• Entertainmen

t hardware

Software• AI• Operating

System• Processing• Security• Maps• Applications• V2V• Cloud

Service• Connectivity

OEM• Automobile• Engine

Distribution• Sale Centers

(China)

Maintenance• Trained

Professionals in new technologies in China and around the world

Diagonal IntegrationSoftware

Build Artificial Intelligence as strategic core competency – Acquire and integrate Zoox as business unit

Build Human Machine Interface as core competency – Invest & Develop internally. Open source application development

Cloud services and maps – Strengthen relationship with Baidu

Security and privacy - Collaboration with McAfee and Cisco

Data processing: Continue relationship with Baidu

Diagonal IntegrationHardware

Imaging sensors as strategic competitive resource - Acquire 51% stake in Mobileye:IS could replace LIDAR as more cost effectiveSupply IS to competitors

Continue collaboration with suppliers:DGPSLIDARCPU/GPUProcessors (Qualcomm)Entertainment hardware, gaming, screens, etc.

Uncertainty Management Safety:

Position BMW as safest automated vehicle manufacturer. Educate market:

Create targeted advertising highlighting the benefits of automated vehicles.

Insurance and Liabilities: Create hardware and software to diagnose liability of accidents

Regulations: Collaborate with other OEM car manufacturers to lobby for

favorable autonomous regulations, including liability Environment

Position company as innovative leader in environmentally friendly manufacturing, sourcing and product design

Reduce carbon footprint to zero by 2035

Guide PostsScenario 1

2020 Sales of new model Level 2 and Level 3

vehicles exceed sales of Level 0 and Level 1 Increased regulation on carbon emissions

creates high costs Economies around the world have

recovered

2025 The EU and US set goal for 80% of all cars

to be Self-Driving by 2050 China’s growth has created more middle

and upper class

2030 Liability, for autonomous vehicles involved

in accidents, is assigned

2035 75% of all light duty vehicles sold are Self-

Driving, accounting for 95.4 million units

Scenario 2 2020

Economies around the world continue through periods of growth and recession

Regulations still continue to be unfavorable towards autonomous vehicles

Hackers are able to penetrate all autonomous software systems decreasing consumer confidence

2025 Google, Apple, and other car makers have

experienced hiccups in their autonomous car programs

Baidu offers their own car autopilot systems that are installed much affordably than new cars with preinstalled systems

2030 Regulations still unfavorable for autonomous

vehicles

2035 Scaling of technologies continues to be

unattainable therefore R&D is continuously slashed at major firms

What Kind of Company Will BMW Be

The leader in luxury automobilesThe leader in innovation:

Efficiency Integration with applications and internet of

everything (IOE)Artificial IntelligenceDesign

The leader in luxury autonomous travel:SafetyPrivacyTime luxuriously well spent

Learning Objectives How are people are reacting to this technology?

How are they actually using it? What is the feasibility of having a wireless car that is

completely secure? What are our competitors doing? Are they making it to

market before us? Are our competitors eroding our competitive advantages? How is our China strategy differing from our global

strategy? Our our consumers globally reacting differently than our

Chinese consumers? Who is capturing most of the value from our partnerships? What happens if we do not develop AI?

ObjectivesLeading market share of 40% for global luxury

vehicles Luxury vehicle market leader with 1.3x relative

market share in China Return on R&D investment, six years from TTMValue captured – 6% Customer Satisfaction of 90%, globally

Thank You!

Source: Scotiabank, Global Auto Report, Feb 6, 2015

Global Automotive Industry - Market Sizes & Major MarketsSource: Scotiabank, Global Auto Report, Feb 6, 2015(millioins of Units)

1990-1999 2000-2011 2012 2013 2014 2015f

TOTAL 39.2 51.55 64.98 68.69 71.02 74.02

North America 16.36 17.74 17.11 18.33 19.38 20.03Canada 1.27 1.59 1.68 1.74 1.85 1.86US 14.55 15.18 14.44 15.53 16.4 17Mexico 0.54 0.97 0.99 1.06 1.13 1.17

Western Europe 13.11 14.14 11.76 11.55 12 12.5Germany 3.57 3.29 3.08 2.95 3.04 3.18

Eastern Europe 1.18 2.85 4.14 4.08 3.8 3.65Global Share 3% 6% 6% 6% 5% 5%

Russia 0.78 1.66 2.93 2.78 2.36 2.08

Assia 6.91 13.99 27.25 29.98 31.69 33.75China 0.43 5.15 13.18 16.3 18.37 19.65India 0.31 1.06 2.02 1.87 1.88 1.97

South America 1.64 2.83 4.72 4.75 4.15 4.09Brasil 0.94 1.75 2.84 2.76 2.6 2.63

Exhibit 1

Source: http://www.best-selling-cars.com/china/2014-full-year-china-worldwide-german-luxury-car-sales/

Current Market Share in China - Premium SegmentSales by manufacturers in China and Worldwide

ManufacturerCar Sales in China 2014

Car Sales Worldwide 2014

% Sold in China

Rel. MS China

Rel. MS WorldWide

Audi 578,932 1,741,100 33% 1.27 x 0.96 x

BMW Group 455,979 1,811,720 25% 0.79 x 1.04 xMercedes Benz 281,588 1,650,010 17% 0.49 x 0.91 x

Exhibit 2

Exhibit 3a


Regions Global Share Evolution

90-99 2000-2011 2012 2013 2014 2015fNorth America 42% 34% 26% 27% 27% 27%Western Europe 33% 27% 18% 17% 17% 17%Eastern Europe 3% 6% 6% 6% 5% 5%Asia 18% 27% 42% 44% 45% 46%South America 4% 5% 7% 7% 6% 6%


90-99 2000-2011 2012 2013 2014 2015f

42%

34%

26% 27% 27% 27%

33%

27%

18% 17% 17% 17%

3%6% 6% 6% 5% 5%

18%

27%

42% 44% 45% 46%

Global Share Evolution

North America Western Europe Eastern EuropeAsia South America

Exhibit 3b

90-99 2000-2011 2012 2013 2014 2015f0%

20%

40%

60%

80%

100%

42% 34%26% 27% 27% 27%

33%

27%

18% 17% 17% 17%

3%

6%

6% 6% 5% 5%

18%27%

42% 44% 45% 46%

4% 5% 7% 7% 6% 6%

Global Share Evolution

North America Western Europe Eastern Europe Asia South America


Exhibit 3c


Major Countries Global Share Evolution1990-1999 2000-2011 2012 2013 2014 2015f

US 37% 29% 22% 23% 23% 23%Germany 9% 6% 5% 4% 4% 4%Russia 2% 3% 5% 4% 3% 3%China 1% 10% 20% 24% 26% 27%Brasil 2% 3% 4% 4% 4% 4%

Others 62% 61% 57% 54% 51% 50%

Exhibit 4a


1990-1999 2000-2011 2012 2013 2014 2015f0%

5%

10%

15%

20%

25%

30%

35%

40%37%

29%

22% 23% 23% 23%

1%

10%

20%24%

26% 27%

Major Countries Global Share

US China

1990-1999

2000-2011

2012 2013 2014 2015f0%

20%

40%

60%

80%

62% 61% 57% 54% 51% 50%

Rest of the world

Exhibit 4b

Exhibit 5: Automation LevelsLevel 0: The human driver is in complete control of

all functions of the carLevel 1: One function is automatedLevel 2: More than one function is automated at

the same time (e.g., steering and acceleration), but the driver must remain constantly attentive

Level 3: The driving functions are sufficiently automated that the driver can safely engage in other activities

Level 4: The car can drive itself without a human driver

Source: Autonomous Vehicle Technology, A Guide for Policymakers, James M. Anderson, 2014

Exhibit 6: Financial ForecastBMW FINANCIAL PROJECTION

SCENARIO 1 SCENARIO 2(in million €) 2013 2035 2013 2035

Current Assets

20,932

175,228 20,932

36,308

Noncurrent Assets

12,833

107,429 12,833

22,259

Total Assets

33,765

282,656 33,765

58,567

Liabilities

14,414

120,664 14,414

25,002

Equity

19,351

161,993 19,351

33,565

Total Liabilities and Equity

33,765

282,656 33,765

58,567

Revenues

57,474 781,738 57,474

134,636

Net Income

2,175 14,479 2,175

3,735

Scenario Assumptions:

ROAGrowth

ROS Growth

Revenue

GrowthCurrent Growth 5.07% 4.50% 7.41%Scenario 1 Growth 10.14% 9.00% 12.60%Scenario 2 Growth 2.54% 2.25% 3.71%

Exhibit 7: R&D Spending in Automotive Industry

R&D Spending as a % of Revenue 2005 2006 2007 2008 2009 2010 2011 2012 2013

AVE GROWT

HGlobal Average 4.00% 3.90% 3.70% 3.85% 4.10% 3.90% 3.60% 3.75% 3.90% 3.86%Europe 4.30% 4.10% 3.90% 4.15% 3.95% 3.80% 3.90% 3.75% 4.20% 4.01%

SOURCE: http://www.strategyand.pwc.com/global/home/what-we-think/global-innovation-1000/rd-intensity-vs-spend-2013-v2stage

Exhibit 8: Peer AnalysisRevenueNet income Net

income CAPEX Dividend

Return on

Assets

Return on

Assets

Return on

Investment

Return on

Investment

(5 yr growth rate)

(Year-over-year

change%)

(5 Yr growth rate)

(5 Yr growth

rate)

(5 yr growth rate)

(TTM) (5 yr average) (TTM) (5 yr

average) Bayerische Motoren Werke AG 7.41 4.5 74.97 9.67 54.02

4.08 5.07

6.38

5.07

Daimler AG 10.47 1.75 -- 10.4 -- 4.07

6.92

6.33

6.92

Ford Motor Company 4.38 -55.6252 3.28 12.95 -- 1.55

7.41

2.26

7.41

General Motors Company 8.31 -25.6233-51.5187 17.15 -- 2.34

6.26

3.74

6.26

Honda Motor Co Ltd 3.42 56.37 33.18 7.85 5.41 3.05

3.58

4.37

3.58

Jardine Matheson Holdings Limited 12.03 -6.2837 18.65 11.34 13.3

6.07

26.72

14.57

26.72

Nissan Motor Co Ltd 4.44 14.05 -- 8.18 22.22 3.08

4.55

4.89

4.55

SAIC Motor Corporation Limited 39.82 19.53 106.78 16.3 126.79 10.57

26.39

23.77

26.39

Volkswagen AG 11.6 -58.2443 13.79 17.44 16.04 3.32

7.59

5.27

7.59

SOURCE: http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=BMWX:GER (www.ft.com)

Exhibit 9: Economic Projections in 2030 and 2050

China

USInd

iaBra

zilJap

anRu

ssia

Mexico

Indon

esia

German

y

France UK

Turke

y

Nigeria

Italy

Spain

Cana

da

South

Korea

Saud

i Arab

ia

Vietna

m

Argen

tina

-

10,000

20,000

30,000

40,000

50,000

60,000

Economic Tigers in 2030 and 2050

GD

P at

PPP

in u

s$bn

Source: PwC Economics, World in 2050: The BRICs and beyond: prospects, challenges and opportunities, January 2013

The world is projected to grow at an average rate of 3% per annum from 2011 to 2050.

Exhibit 10: Value CapturedVALUE CREATED

(Based on 2013 FS) BMW AUDIMercedes-

BenzSales 60,474 41,732 75,531 Cost of Sales (43,402) (28,218) (54,722)Total Value Created 17,072 13,514 20,809 Direct Labor (3,665) (4,552) (7,385)R&D (4,362) (2,822) (5,472)Selling, G&A (5,669) (3,436) (8,626)Depreciation (1,732) (1,306) (2,313)Value Captured 1,644 1,398 (2,987)Value Captured (%) 2.72% 3.35% -3.95%Value Created (%) 28.23% 32.38% 27.55%

Exhibit 11: Scenario Assumptions to Project Unit Sales (Realistic Attainable

Market) SCENARIO ASSUMPTIONS 1

Based on the case (Autonomous only) - 75%

95,000,000 Assumed Market Segment of Luxury cars 13.24%# of units sold - Autonomous Luxury cars by 2035

12,582,430

Non-autonomous - 25%

31,666,667 Assumed Market Segment of Luxury cars 13.24%

# of units sold - Non-autonomous Luxury cars by 2035

4,194,143

Total Market Segment of Luxury Cars by 2035

16,776,574

Assumed MS of BMW 40.00%

Forecasted units sold by BMW in 2035 6,710,629

SCENARIO ASSUMPTIONS 2

Forecasted units sold by automotive industry

119,878,273

Autonomous Market Segment (10%)

11,987,827

Non-Autonomous Market Segment (90%)

107,890,445

Autonomous Market Segment


# of units sold - Autonomous Luxury cars by 2035

988,356

Non-Autonomous Market Segment


# of units sold - Non-autonomous Luxury cars by 2035

8,895,204

Total Market Segment of Luxury Cars by 2035

9,883,560 Assumed MS of BMW 30.94%

Forecasted units sold by BMW in 2035

3,058,094

Exhibit 12: Scenario Assumptions to Project Unit Sales (Realistic Attainable Market) –

con’t

Scenario 1 2Auto Level Level 3 Level 4 Level 2 Level 3 Level 4Target Sales Mix 25% 75% 30% 60% 10%

# of units sold

1,677,657

5,032,972

917,428

1,834,857

305,809

20132035

S1 (10%) S2 (1%)

Luxury Car Market (€ bil)

319

2,361 393

Luxury Car Market ( '000 units)

5,855

16,77

7 9,884

BMW Revenues (€ bil)

57 782 157

BMW Revenue (%) 18% 33% 31%

BMW units sold

1,812

6,711 3,058 BMW units sold (%) 31% 40% 31%

Average Price (€ '000 )

31.46

116.4

9 51.42

Exhibit 13: Basis of Market Funnel

Number of cars sold worldwide (1990-2015) Units (in mil)

1990-1999 39.20

2000-2011 50.71

2012 64.98

2013 68.69

2014 71.02

2015* 74.02

CAGR (2000-2014) 2.44%

SOURCE: http://www.statista.com/statistics/200002/international-car-sales-since-1990/

Luxury Car Sales in 2014 (in '000s) Units MS Rel. MS

BMW 1,811.72 30.94%

1.04

Audi 1,741.10 29.74%

0.96

Mercedes-Benz 1,650.01 28.18%

0.91

Land Rover

381.11 6.51%

0.21

Porsche

189.85 3.24%

0.10

Jaguar

81.57 1.39%

0.05 5,855.36 100.00%

Luxury Car Sales Share in the Automotive Industry 8.24%SOURCE: http://www.statista.com/statistics/287682/luxury-vehicle-sales-by-brand/

Exhibit 14a: Mobileye Acquisition

Acquire 51% of Mobileye thru cash and stock deal

Mobileye’s market capitalization is currently valued at 7.6B and its stock price is traded at $35/share

http://www.mobileye.com/

Exhibit 14b: Zoox Acquisition

Car Automation IntelligenceControl SoftwareCapabilities

http://www.electric-vehiclenews.com/2013/12/zoox-reveal-autonomous-bi-directional.html

Exhibit 14c: McAfee Partnership

Software SecurityFirewalls

http://www.mcafee.com/

Exhibit 14d: Cisco Partnership

Security Software & HardwareFirewallsCloud ServiceCloud Software

http://www.cisco.com/

Exhibit 14e: Baidu Partnership

MappingClouding IT

http://www.baidu.com/

Exhibit 15: SWOT AnalysisRelative Strengths Relative Weaknesses

• R&D • Premium positioning• Collaboration with Baidu• Brand• Global presence• Product offering • Customer Relationship

• Product recalls• Unfunded pension

liabilities• Lacking technology

needed to be fully autonomous

• Agility

Opportunities Threats• Growing Electric market• Fully autonomous cars• Asia

• Intense competition in the luxury market

• Loose relationship with Baidu

Exhibit 16: Indicators Scenario 1

Starting in 2016 deregulation of autonomous vehicles accelerates around the globe.

Increased regulation on Carbon emissions continues to take place every few years creating high costs for cars without increasingly adequate environmentally friendly features.

By 2017 – US Department of Transportation issues mandate requiring V2V communication installed in all new model cars by 2025

Sales of new model Level 2 and Level 3 vehicles exceed sales of Level 0 and Level 1. Consumer expectation is each new vehicle should have some basic automation.

By 2020 – All new car models have autonomous features some achieving level 4 status.

The entire US has legalized fully autonomous cars, as have China and the EU.

The EU and US jointly set goal to have 80% of all cars on road Self-Driving by 2050.

By 2024 – US regulations require all roads to begin being digitalized and infrastructure is built for autonomous cars.

Taxes are extreme for non-autonomous cars and privately owned cars.

By 2030

Governments around the world create legislation for who is liable for accidents.

By 2035

75% of all light duty vehicles sold are Self-Driving, accounting for 95.4 million.


By 2016 – EU collapses

By 2020 – Google has experimented road bumps in its auto vehicle testing

Hacking consistently threatens all aspects of technology including Self-Driving cars

Fully autonomous vehicles are not legal to be driven commercially in any state or most of the world. Most US states still do not allow testing.

By 2022 – Self-Driving system manufacturers start to install anti-malware solutions, albeit much later than is socially acceptable.

Tech has not advanced sufficiently enough to make Self-Driving cars affordable for mass production or consumers.


By 2025 – Baidu offers their own car autopilot systems that are installed much cheaper than new cars with preinstalled systems.

By 2030 – Legislation is still lacking for fully autonomous vehicles as well as affordability for the mass has not been reached.

By 2035 – Consumer confidence is fully autonomous vehicles is still low.

Scaling of technologies continues to be unattainable therefore R&D is continuously slashed at major firms.


Raw Materials BMW: Production and Manufacturing

Sales and Marketing Distributors Maintenance and

Service Disposal

Exhibit 20: Current Value Chain

Overlap between worlds:

Wealthy, status,

security, privacy,

environmental,

easy city driving, safety,

reliability

Scenario 1• Connec

tivity • Integrat

ion and use of applications

• Customizable

Scenario 2• Partially

automated

Exhibit 21: Buyer Profiles