You have often asked why in a channel called VisualPolitik we sometimes make videos about
companies.
For example, we already talked about, Amazon, Inditex and Tesla, among others.
Well, we do it for two fundamental reasons:
The first one is that we see politics in a broad sense, that is, we can’t talk about
politics without considering economic and social issues.
And, of course, I don’t think we can deny the huge influence that big companies have
in our lives today.
Secondly, we know that many of you also love these kinds of videos so we keep making them.
And, you know what?
We like these kinds of subjects too…
so…
here we go.
In this video, we have a pretty interesting combination: BMW, Germany and China.
As we mentioned here at VisualPolitik, Germany is the mother factory of the world.
The country where machines and the things that go into the things that other countries
produce are manufactured.
And of course, of all industries, the automobile industry is, without a doubt, the most famous
and most peculiar.
We all know that brands like Mercedes, BMW, Volkswagen, Porsche, Opel and Audi are German.
And this is because Germany isn’t only one of the largest car producers in the world,
it is also considered the cradle of the first car.
You heard that right.
In 1885, an engineer called Karl Benz, tried to place a combustion engine into a three-wheeled
chariot:
This was known as the Benz Patent-Motorwagen and was able to reach the astounding speed
of 16km per hour.
In total, 25 units were manufactured and in one of them, Bertha Benz, Karl Benz’s wife,
made what is considered the first car trip in history, for a distance of actually 94
km, which isn’t bad By the way, have you noticed something?
Back then, there were of course no gas stations...
so how did Bertha Benz refuel?
Well, by buying a petroleum derivative in pharmacies, ether.
Yes, that's right, we could say that pharmacies were the first gas stations in history.
But... of course, that's not the reason why cars in Germany are so important.
You see, because more machines are always needed, the automotive industry, my friends,
is one of the most productive and most capitalized..
So… what better place to manufacture them than Germany, the country of machines?
However...
despite this... let's just say that in recent times the German automotive industry, and
the European automotive industry in general, hasn’t been the most popular one.
(IN DANGER OF EXTINCTION?)
In recent times there has been a widespread feeling that the traditional automotive industry,
and especially as we said European manufacturers, will be the big losers of the upcoming electric
car and autonomous car revolution.
Because, who would want one of those old companies when we have fresh and innovative companies
like Tesla?
I talked about it here, on VisualPolitik, not so long ago.
Despite never having made money and producing very few cars, Tesla has a market value that
is as large as that of BMW and which is far superior to companies such as Renault or Peugeot.
How is this possible?
Well as we saw, basically because many investors consider that in a few years, Tesla will literally
take over the market.
And here, my friends, is where some questions arise:
Will the electric car transition really be that quick?
Are European manufacturers too late to join this revolution?
I don’t know what you think, but some information at least doesn’t seem to support these ideas.
See:
"According to a recent study from the IFO Institute, Europe owns almost half of all
patents related to the electric car, leading the world ranking, and being well ahead of
countries such as Japan (23%) and the United States (18%)."
Iván Martín, President and Chief Investment Officer of Magallanes Value Investors.
Well, let's assume that Elon Musk is right, and Tesla manages to overcome all the problems
that currently affect it - for example, the production of Model 3 – and thus fulfills
his most ambitious forecasts, managing to sell 2 million cars in 2022.
This means that he would have to multiply his production capacity not by 2 or by 5,
but by 20 in just over 4 years.
Well, in that same year, at least 110 million vehicles are expected to be produced in the
world.
Honestly, considering the strong growth of the middle class in emerging markets, I would
bet on far more vehicle production than that, but...
OK, let's be prudent and stay with that number
Out of those 110 million cars, no more than 20% are expected to be electric cars or plug-in
hybrids
So, what would that mean?…
well, that in the best case scenario, Tesla would have a market share in the industry
of less than 2%, and 9% in the electric car market.
In other words, my friends, we could say that the cards aren’t dealt yet and that even
if Tesla's best forecasts are met, there will be many more companies in the market... companies
such as BMW.
(A GERMAN ICON)
BMW is one of the great icons of the German industry.
Robust, luxurious and technologically advanced cars.
Who doesn’t want a BMW?
See, in 9 of the past 10 years, this brand has been the world leader in premium cars.
And the truth is, my friends, that this is quite interesting.
See, this company, besides owning BMW, also owns Mini and Rolls Royce, and at the time
of publishing this video has a market value that is very similar to that of Tesla, about
50 billion dollars.
Despite this... both companies have many, many differences.
While in 2016 Elon Musk’s company managed to sell 76,000 cars while losing 770 million
dollars; the German company sold 2,360,000 cars and had a profit after tax of more than
7 billion dollars.
Yes, I know, some of you may now be thinking:
Wait, wait, Simon, this isn’t a fair comparison, Tesla is currently investing in research and
developing new technologies; while BMW makes the same cars they’ve been making since
the beginning.
Well, it isn’t quite like that:
In 2016, for example, the German group invested more than $ 5 billion in research and development.
Meanwhile, Tesla's investment was 5 times smaller, slightly less than $ 1 billion.
And, of course, a lot of that investment is going, where?
To develop electric and autonomous models.
“BMW to spend $237 million on battery cell center.”
Reuters
And that's not all.
Here’s a question, and don’t google it and cheat.
Which company, BMW or Tesla do you think is going to sell more electric cars in 2017?
Now many of you are probably betting on Tesla, by a lot.
Right?
Well... wait just a second..
Because the truth is that, taking both electric cars and plug-in hybrids into account, both
companies are actually very close.
And it does look like Tesla will win, but by very little.
In fact, both companies are expected to close their 2017 sales with approximately 100,000
electric cars.
Yes, okay, I'm sure some of you would argue that Tesla has stored a lot of its Model 3
cars, which in principle translate into sales for the next few years.
“The Model 3 will be new territory for CEO Elon Musk and Tesla as a company.
The sedan has already received at least 400,000 pre-orders.”
Business Insider.
That’s true, but the German brand also hopes to improve its numbers.
In short, as we always say here at VisualPolitik, the future, dear viewers is by definition
uncertain.
Tesla could be a great company, but it won´t be the only one.
The truth is that, by selling almost as many electric cars as Tesla; by investing 5 times
more in R&D; and by earning a cumulative profit of more than 30 billion dollars in the last
five years, I think we can say that BMW is, at least a very important competitor.
In fact, it is surprising that both companies’ market value is practically the same, considering
that expectations for one are so much higher than they are for the other.
Especially when in recent years BMW has become a major, and very important player in the
Chinese market.
(THE GREAT CHINESE MARKET)
Since 2007, and despite the international economic crisis, the BMW group has managed,
in less than 10 years, to increase its number of cars from 1,500,000 in 2007 to 2,367,000
cars in 2016.
And of course, that translates into more income and also more benefits.
See, BMW’s net benefit, that is, the money that is left for the company after taxes,
has more than doubled in this period of time.
Check out this graph:
Having seen it, we could say that things have gone quite well for this company.
Well... one of the pieces that has greatly aided this progress is actually China, yes,
China.
Take a look at how their market has evolved:
In 2016, it managed to sell half a million cars, out of which 300,000 were manufactured
in China itself (through a partnership with a local company), and 200,000 were imported,
mostly from the factories that the company has in Germany.
In other words, 1 out of every 4 cars sold by the BMW group is already in China, a market
where the automobile sector will surge in the upcoming years, along with its middle
class.
Well, the fact is that beyond any comparison with Tesla, BMW's Chinese adventure shows
us a couple of things:
The first is that, far from what is usually said, China could be a great source of opportunities
and wealth, something which incidentally, we have been mentioning on VisualPolitik for
a long time.
Each year 80 million Chinese join the middle class and that... has very clear and obvious
consequences on their ability to spend.
Secondly, it is very common to hear politicians of all backgrounds arguing that in order to
export more, the currency needs to be devalued.
Well, Germany says quite the opposite.
What is required isn’t a cheap currency--it’s competitiveness and good products.
But we will talk about that another time.
Now it’s your turn, if you had to choose, which company would you bet on?
Tesla or BMW?
At the end of the day, as we’ve seen, both have very a similar market value.
Leave your answer in the comments as well as in the survey.
I really hope you enjoyed this video, please hit like if you did and don’t forget to
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Also, don’t forget to check out our friends at the Reconsider Media Podcast - they provided
the vocals in this episode that were not mine!
And as always, thanks for watching!