Analysis: BMW Motorrad Signs Cooperation Agreement with India’s TVS Motor Company Staging Entry into Under 500cc Motorcycle Segment

A number of eyebrows were raised when BMW sold Husqvarna to Stefan Pierre of KTM, a mere five years after BMW acquired the Italian dirtbike mark from MV Agusta. BMW’s move makes sense in light of today’s announcement of a long-term cooperation agreement with India’s TVS Motor Company, positioning BMW for reentry into the sub-500cc market. Why should BMW own a largely sub-500cc brand like Husqvarna, when you can partner to produce such bikes, and keep them within your own brand umbrella?

The transition to a sub-500cc partnership could be interpreted largely as a cost cutting move, but there is more in play here. BMW’s prior 450cc bikes, like the discontinued G450X, saw their engines manufactured by Taiwan’s Kymco. Similarly, BMW’s venerable G650GS sees its engine assembled by Loncin in China, using parts manufactured by Rotax of Austria. Under a cooperation agreement, there is less likely to be a loss of intellectual property around engine and other design elements, as “two companies each offering their own vehicle derivatives”. Cooperation leads to safe co-dependence.

This is also an easy and safe way for BMW to gain access to the huge and growing Indian motorcycle market. Given bikes manufactured under the agreement will be sold through the participants’ own distribution channels in India and across the globe. It also means not needing to ship bikes outside of India to meet the demand of that country’s increasingly economically empowered middle class. In terms of small displacement bikes, after India and Asia, the rest of the world is gravy. BMW must be fairly salivating over entry into a market where TVS Motor Company’s annual production volume hits some 2 million units.

The danger for BMW though, is a fall from “premium” brand status in the aspirational North American market simply by association. BMW Motorrad’s core bikes, like the R1200GS, aren’t likely to see production in India anytime soon, as there’s too limited of a demand for them in India’s market. Additionally, the onus placed on a small bike manufacturer like TVS Motor Company to tool up for big bike production represents a major start up cost for a relatively small market gain. Conversely, on the small-displacement side, Husky would never have had the throughput to produce the number of units required by the Indian market.

As with its automotive side, we are seeing BMW grow up and out, spreading to fill a wide variety of niches (or even micro-segments like the X6 or upcoming X4). That ubiquity will mean a certain diminishment of “I own a BMW” pride, but brands are about perception, and perception can be managed. Especially if we’re seeing bikes that can meet the needs of underserved western segments; a truly affordable small adventure bike for those with a short inseam for example. As with the excitement over KTM’s upcoming 390 Duke produced in Chakan, India by Baja, who with just over 47% ownership of the Austrian firm goes well beyond being a mere “partner”.

Overall the partnership announcement should have North American consumers enthusiastic. For us the continued commodification of BMW and the introduction of a diverse range of small, relatively affordable, well designed and practical bikes from the German Mark into the market is a positive move.

BMW Press Release Follows:
Munich / Chennai, India. As part of its strategic reorientation, BMW Motorrad will be entering the segment below 500 cubic centimetres. BMW Motorrad and the TVS Motor Company have signed a long-term cooperation agreement for this purpose. This was announced at a press conference today in Chennai, India.
 
The aim of the cooperation is to join forces to develop and produce motorcycles in the segment below 500 cubic centimetres.
The various stages through to the finished serial production motorcycle will be planned by both partners but implemented with different focus areas on each side leveraging the strengths of both companies. The cooperation agreement involves the two companies each offering their own vehicle derivatives, which will be sold through their own distribution channels in India and across the globe.
 
Both contractual partners commented on the future cooperative venture at the press conference. Stephan Schaller, President BMW Motorrad:
“In view of changing motorcycle markets, demographic developments and increasing environmental demands we are expanding our product range so as to tap into fresh growth potential. We have a highly expert and experienced partner in the TVS Motor Company. This means that in future we will be able to offer vehicles in smaller capacity classes in addition to the BMW Motorrad core segments. Various types of motorcycle are conceivable. They will meet the expectations of a BMW motorcycle in terms of riding fun as well as setting a new benchmark when it comes to stability, agility and performance figures. I regard this long-term cooperation as an important step along the road to profitable, sustainable growth.”
 
Venu Srinivasan, Chairman TVS Motor Company:
“With BMW Motorrad, we see an ideal long-term strategic partner who shares our core values: focus on quality, engineering prowess, innovation and customer satisfaction. We intend to leverage each other’s strengths to deliver a new series of products offering cutting edge technology for our customers.”
 
The cooperation partner TVS Motor Company is one of the largest motorcycle manufacturers in India with an annual production volume of some 2 million units and a turnover of more than one billion USD. TVS Motor Company is the flagship company of the 100 year old six billion USD TVS Group, which has some 40 companies and holdings in the automotive sector. TVS Motor Company offers the widest range of product in the Indian two and three wheeler industry. The company’s customer inspired engineering approach, has enabled it to introduce a wide product range that caters to all industry segments. TVS Motor Company has international presence in more than 50 countries in Asia, Africa and Latin America.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s