Research and Development of the BMW 5 series case study

Research and Development of the BMW 5 series case study

BRIEFING NOTE (16th of November 2021)

Brief discussion Research and Development of the BMW 5 series case study

A. Communication

• Key task: to Research and Development of the BMW 5 series case study from 2010 to 2020
• Background on myself: linkedin.com/in/rubenbach
• I can be reached via mail on rb@amdug.de
• Videocalls best via www.whereby.com/spathacapital (simply copy paste the link into your browser)
• I usually work from 0900 to 1900 CET
• Please ask for help, guidance or else if you need to – I am available for you
• Better to communicate earlier than to remedy mistakes later!
• If you need anything pls let me know!
• Pls send first output for the year 2010 after you have finished it so we can refine
• Pls send second output for the years 10, 11, 12 so we can further refine

B. Background

• BCG (www.bcg.com) has developed a new financial model for measuring the true cost and capital efficiency for the R&D function of car manufacturers (for details pls refer to the article I sent to you)
• The typical vehicle development process requires approx. 4 years of research & development (“R&D”) followed by approx. 7 years of sales
• Over the sales period, additional (smaller) R&D expenses need to be made that lead to R&D output known as e.g. (i) derivative, (ii) facelifts, (iii) powertrain adjustment, etc. (pls see https://www.researchgate.net/figure/An-example-Automotive-Product Development-Process-Magna-Steyr-2015_fig1_308091709 for an overview of the vehicle development process)
• However, automotive companies currently express R&D efficiency typically as a percentage of sales (ratio: R&D costs/sales) on a yearly basis
• This misallocates cost over time (details to be found in the BCG article): R&D expenses that create revenue and profits in the future are wrongly matched to sales that are caused by R&D expenditures in the past
• The new financial model gives management better information on how capital efficient their R&D really is
• This new financial model helps my client to argue for the true value of its outsourced engineering services and the cost reductions necessary
• The new financial model is described in detail in the article you received and in general in EXHIBIT

C. Deliverables

• My client needs to calculate a model as described in EXHIBT I for BMW (www.bmw.de), one of the globally leading car manufacturers
• Initially, we should start with the 5er series (to keep it as simple as possible), other series might follow
• Info video about one of the latest 5er series models on youtube (gives an impression about the car and the quality): (https://www.youtube.com/watch?v=Lh4xMqL7GXM)
• My client requires
  • a detailed description of the development history of the 5er series including all derivatives, face lifts etc. on from 2010 to 2020 (suggested sources: press releases, youtube videos, investor presentations, annual reports)
  • the global sales numbers of the 5er series in the years 2010 to 2020 (source: to be researched, potentially the annual report, can be also asked from the investor relations department)
  • the R&D expenses (source: annual report of BMW – excel file for the period)
  • the R&D depreciation (source: annual report of BMW – excel file for the period)
  • anything else you see and might be useful improve the quality of the calculation

C. Initial Process

• I suggest that you look through the press releases on the BMW press website and you tube videos beginning on the 01.01.2010 regarding the 5er series (search query youtube for example: https://www.youtube.com/results?search_query=BMW+5+series+2010) and take notes with the exact date of all news for the BMW 5 series that influences development costs
  • New lead model introduced
  • Face lifts
  • Introduction of derivatives
  • Changes of the powertrain
  • Etc.
• IMPORTANT: in case of doubt put in more information than less, we can always cut out later

D. Example of output (all dates and events are not the real dates and invented and for example only)

• March 2010 the new 5 series BMW was introduced (source: …)
• June 2010 two derivatives of the new 5 series BMW were introduced (source: …)
• July 2010 a third derivative of the new 5 series BMW war introduced (source: …)
• September 2010 a facelift was done (source: …)

E. Next steps

• After a couple of hours experience with youtube, you should contact the BMW press department and ask them on additional information regarding the 5er series, especially about the history of development between 2010 and 2020
• Press info on BMW you can find here https://www.press.bmwgroup.com/global
• You should ask the BMW investor relations department for historical and future roadmaps they might be able to refer you to the relevant
• Lots of additional data for BMW can be found here: https://www.bmwgroup.com/de/investor-relations.html
• Over time we should come up with a list of R&D events that allow to make the calculation as suggested by BCG

F. Documentation

• Pls document any statement you make with the used source(s), ideally with a link, so that click trough is possible
• Keep all sources (e.g. annual reports, links to youtube videos etc.) in separate files – my client will request them

Much fun and success

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