BMW attacked, fights back with EV launch
An attack on BMW's high prices by CCTV is unlikely to have a major impact, while its new China EV initiative looks largely superficial but should earn it positive publicity
German luxury automaker BMW (Frankfurt: BMW) is in two sets of China headlines today, coming under a media attack for its high prices as it separately announced it will bring its electric vehicles (EVs) to the market. If I were a conspiracy theorist, I might try to link these two pieces of news and say that BMW knew the media attack was coming, and made its EV announcement to try and deflect the negative publicity. But I really doubt these two pieces of news are related. Instead the new attack from leading broadcaster CCTV reflects one of the biggest and more unique dangers that major multinationals like BMW face in China. The EV announcement represents the kinds of counteroffensives such companies must launch to maintain a positive image.
In many ways, this latest attack looks quite similar to another assault by CCTV on the yuppie-oriented Starbucks (Nasdaq: SBUX) coffee chain last year. In that instance, CCTV reported that Starbucks often charged more for coffee in China than it did for many major western markets where living standards are much higher. CCTV followed that assault with another similar report against foreign luxury car makers, accusing them of charging excessively high prices to Chinese buyers.
Now CCTV has sharpened its focus by launching another attack specifically targeting BMW, which enjoys a strong reputation in China as a high quality luxury brand. This time CCTV looked at the prices of imported BMWs, and discovered they can cost up to three times the price that they sell for in other markets.
I'll admit that this huge price discrepancy does seem a bit high, and is probably due to a number of factors. China is famous for its big duties on imported cars, and BMW and other global automakers have invested billions of dollars on locally based factories to avoid such taxes. Still, the automakers themselves have effectively admitted in the past that they charge high prices in China simply because local consumers are willing to pay such prices.
The case was similar with Starbucks last year. While Starbucks kept a low-profile after the CCTV attack, many consumers came to the company's defense and said it should be allowed to charge whatever prices it wanted. I would say that the case is similar here, especially since any Chinese consumer wanting a more affordable BMW can easily buy a domestically manufactured model. Accordingly, I doubt this latest investigative report will prove too damaging to BMW, though the case does illustrate one of the unique dangers that big foreign companies face in China.
While CCTV was taking aim at BMW, company officials were on their own publicity offensive by announcing the launch of their i3 EVs in China set for September. They added BMW would also sell its i8 model EV at seven dealerships across the country, though the company didn't expect to sell more than 1,000 units this year due to limited supply. Such a modest sales target looks easily attainable, especially after EV superstar Tesla (Nasdaq: TSLA) generated big publicity last month with the delivery of its first EVs in China.
More broadly speaking, BMW made a wise decision by talking about the importance of China's EV market, which it predicted would become the world's largest within five years. That's the kind of message that must sound quite pleasing to Beijing, which has made development of clean-energy vehicles a top priority. Whether China will actually meet any of its ambitious EV targets is another matter completely, since problems still remain in terms of technology and infrastructure. But that doesn't really matter for BMW, which is demonstrating its commitment to Beijing's priorities with its latest EV announcement.
Bottom line: An attack on BMW's high prices by CCTV is unlikely to have a major impact, while its new China EV initiative looks largely superficial but should earn it positive publicity.
To read more commentaries from Doug Young, visit youngchinabiz.com