German automotive website Auto Motor und Sport has been reporting that BMW Group AG (NASDAQOTH: BAMXF ) will unveil a BMW 9 Series at the upcoming Beijing Auto Show. While automotive enthusiasts are no doubt excited by this report, the potential investment side matters to auto industry investors as well.
Top of the BMW line
Nearly 2 million vehicles were delivered in 2013 by BMW Group, a company composed of BMW, Mini, and Rolls-Royce. However, the BMWs you probably see most often are the lower-priced, higher-volume 1 Series and 3 Series models. The current top end of the BMW luxury sedan line is the 7 Series, which starts at $74,000 in the U.S. but can easily rise into the six-digit range by adding trim levels and options.
The latest reports suggest that the rumored vehicle at the Beijing Auto Show would be a larger, more luxurious version. Although company officials have yet to publicly confirm even the vehicle's unveiling, logic would suggest it would take the 9 Series name to fit in with the rest of the line and take the highest-priced spot.
If BMW is going to reveal a larger more luxurious sedan, the Beijing Auto Show is the best place to do it. Besides the fact that the Beijing Auto Show is a major event on its own, such a vehicle is likely to be targeted toward the Chinese market.
We talk a lot about the growing middle class in China, but the growing wealth of the rich elite is also a valuable market. Luxury automakers know this well and have been reacting with billions in investment. Late last month, Daimler AG (NASDAQOTH: DDAIF ) announced that it and its joint-venture partner would spend 1 billion euros to double production of Mercedes-Benz vehicles. This comes as demand for Mercedes-Benz vehicles continues to rise, with deliveries rising 57% in the first two months of this year.
Even luxury electric-auto maker Tesla Motors (NASDAQ: TSLA ) has been using China as part of its growth plan for sales of the Model S. Along with Europe, Tesla hopes that China will provide much of the company's sales growth in 2014.
Making the decision to unveil a new top-of-the-line vehicle at the Beijing Auto Show even more logical is a market for large luxury sedans fueled by the preference of many wealthy individuals to ride in the back seats of the vehicle. When those riding in the back are those spending the money, having a large luxury sedan with spacious back seats is a major advantage.
Basis for a 9 Series
Developing an all-new vehicle is very expensive, and automotive companies try to reduce these costs wherever possible. Volkswagen Group AG (NASDAQOTH: VLKAY ) has even gone as far as to create plans to build 40 vehicle models off one platform. Considering Volkswagen produces numerous varieties of small vehicles, both under the Volkswagen name and the names of other companies owned by Volkswagen Group, using a single platform should mean big savings on development costs.
BMW has an ideal position to make an even higher-priced vehicle. Not only can BMW use the resources at BMW itself, but BMW Group also owns Rolls-Royce, a company that makes BMW vehicles look cheap by comparison. Using a platform from a higher-tiered brand within the corporate ownership structure is hardly unique in this industry. For example, when Volkswagen wanted to move upmarket, the Volkswagen Phaeton used a platform also used for Bentley, another part of the Volkswagen Group.
If a BMW 9 Series does come to life, expect at least some influence from Rolls-Royce for development cost savings and the selling point added by featuring a Rolls-Royce platform.
As of this writing, reports of this ultra-luxury offering from BMW have yet to be confirmed. But such a vehicle does make sense as an extension of the BMW line and as a new way to increase market share in China.
If the vehicle does make an appearance at the Beijing Auto Show, the report from Auto Motor und Sport suggests production for 2016. With the Chinese auto market developing so quickly, the sooner the vehicles can be in production, the better for BMW.
Even if this vehicle doesn't make an appearance in Beijing, a vehicle for this target market could be released in the future. In that case, investors should hang on to the information in this article and use it for another day.
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