Audi SWOT Analysis 2019

CONTENTS
INTRODUCTION
STRENGTHS
WEAKNESSES
OPPORTUNITIES
THREATS
CONCLUSION

Audi SWOT 2019 Introduction :-

Company Name	Audi Motors.
Industry	Motor Vehicles & Parts
Founded	1909
Founder	August Horch
CEO	Bram Schot
Headquarters	Ingolstadt, Germany.
Revenue (2018)	€59,248 Million
Gross Profit (2018)	€9,131 Million
Number of Employees (2018 av.)	91,477
Largest Market	China.
Number of retail stores and service locations (2018)	5000 approx.

Audi is one of the leading premium car brands, famous worldwide for its stylish vehicles, innovative technology and luxurious driving experience. The Audi Group  also owns the Ducati and Lamborghini brands and is itself a part of the Volkswagen group. The brand is undergoing a strategic transformation which will enable it to cater more efficiently to customer demand.  Some of the core areas where Audi will focus in near future include digital technology, electric cars and autonomous driving. The brand plans to invest billions of Euros in these areas in the coming years. Moreover, it has maintained its strong position in the China premium vehicle market. As a part of its strategic transformation, the company has also involved its regional distributors and dealers whose role is critical to the fast growth and expansion of the Audi group. In 2018, production and sales of vehicles by the group saw a slight decline compared to the previous year and so did its net revenue. 

 The global auto industry including China has entered a challenging phase in 2019. The competitive pressure is also surging. Tesla’s aggressive run to dominate the electric car market in the premium segment is also a challenge for Audi. While Audi is excited about electric cars, the conventionally powered cars will still remain a large part of its portfolio and a major source of revenue.  Apart from that, regulatory pressure and tariffs are also making the environment more challenging than ever. However, Audi is partnering with other auto firms and technology brands to achieve higher scale and expand faster. It has kept China which has become its main market at the centre. Audi is producing more models locally to sell in China. It has a large and varied product portfolio and is betting on technology for faster growth and better customer experience. 

Read more about the strengths, weaknesses, opportunities and threats of Audi in this SWOT analysis.

STRENGTHS.	WEAKNESSES.
Leading Position in China. Large Product Portfolio. Brand Equity. Production & Distribution Network. Focus on Innovation.	Losses due to the Diesel Issue. Vehicle Recalls. Other Legal Problems.
OPPORTUNITIES.	THREATS.
Electric cars. Autonomous driving. Digitalization. Partnerships.	Competition. Regulatory Pressures. Costs of Raw Materials & Labour.

Strengths

Leading position in China market :

China’s strategic importance as an auto market has grown very fast in the recent years. All the leading auto brands including Audi are investing in China through strategic partnerships with local firms, developing local infrastructure and growing their penetration of the market by producing locally. China is now the number one auto market of the world and the demand for premium cars in this market has also grown very fast. According to Audi’s annual report 2018, the demand for premium cars has surged and Audi is leading in this segment.  China Daily notes, Audi sold 660,888 vehicles in 2018 which was 11% higher than the previous year. Being  the leader in the premium segment in the world’s largest car market is a competitive advantage and proves the attractiveness of Audi’s portfolio.

The China market is one of the core pillars of Audi’s business model. Audi had entered this market some 30 years ago which is also a reason behind its leading position here. With time, it has focused more on producing locally as well as expanding its research and development infrastructure located in China. It also researches technology and mobility trends in the China market and incorporates them into its products directly. In the future, Audi is planning to sell more than one million cars every year there. The strategic importance of China for Audi as a vehicle market has also grown for one more reason which is the growing demand for electric vehicles here. According to its annual report 2018, the production volume of electric cars and hybrids will be highest in China followed by U.S. in future. By 2022, Audi wants to increase its local portfolio in China to 12 models, working in partnership with its local partner FAW.

Large product portfolio : 

Audi has a large product portfolio that includes cars and SUVs. According to its annual report, 2018, Audi produced  1,864,815 vehicles of 28 Audi models which was slightly lower than the previous year when Audi had produced 1,875,784 vehicles. The largest number of vehicles, 491,262 units, were produced at the Audi group headquarters in Ingolstadt. The number of units produced by Audi in 2018, fell mainly because of transferring production of Audi A1 to Martorell (Spain). 

The model with the largest number of vehicles produced in 2018 was the Audi Q5 followed by Audi A4 Sedan and Audi A6 Sedan. Audi produced 298,793 units of Audi Q5, 244,484 units of Audi A4 Sedan and 195,270 units of Audi A6 Sedan respectively. Series production of the Audi Etron, the first fully electric model by Audi began in Brussels during the third quarter of 2018 (Audi Annual report, 2018).  

Audi delivered 1,812,485 units of Audi cars in 2018 compared to 1,878,105  in 2017. The models with highest number of deliveries included Audi Q5, Audi A4 Sedan, Audi A6 Sedan and Audi Q3. The company delivered 294,905  units of its Q5 model, 244,707 units of Audi A4 Sedan, 197,212 units of Audi A6 Sedan and 170,458 units of Audi Q3 respectively (Audi Annual report, 2018). 

Audi group’s product portfolio also includes Lamborghini and Ducati brands. Total units of cars Audi produced in 2018 including Lamborghini was 1,871,386 compared to 1,879,840 in 2017. Production of Lamborghini vehicles surged sharply in 2018, growing to 6,571 versus 4,056 in the previous year. Apart from the 28 models of Audi vehicles, the group also makes 3 models of Lamborghini cars which include Urus, Huracan and Avantador. Urus production and sales increased in 2018 compared to the previous year. Audi produced 2,565 units of Lamborghini Urus in 2018 compared to 121 previous year. Urus was also the main driver of Lamborghini’s growth in 2018 and more than 2/3rd of the customers who bought Urus (Super SUV) were ordering their first Lamborghini (Audi Annual report, 2018). 

 The company also makes engines and motors for cars.

The production and delivery of Ducati Motorcycles (also owned by Audi group) declined as compared to last year. Ducati increased the production of Scramblers and Supersports Bikes. Production of the rest models including Diavel, Monster, Hypermotard and Multistrada fell. Total Motorcycles that Ducati or the Audi Group produced was equal to 53,320 in 2018 compared to 56,743 in 2017. In this way, the product portfolio of Audi group is quite large which includes premium sedans, sportbacks, roadsters as well as supercars, super SUVs, super sports bikes, sports cruisers and superbikes (Audi Annual report, 2018). 

Brand equity :

Over time, while the popularity of Audi as a premium car brand has surged a lot in both Western and Asian markets, the company has also strengthened its brand equity a lot by focusing on technology and user experience. It is the leading premium car brand in China market and the Chinese customers love its cars for their style as well as technology and rider safety. 

Audi has been able to strengthen the trust its customers place in it through consistent focus upon quality and innovation as passenger safety. Higher brand equity has also translated into higher sales and faster growth for Audi. Moreover, to offer its customers the best in class products and services, the company regularly researches new technologies and trends and incorporates them into its products faster.

 In recent years, Audi has grown its focus upon integrity and compliance as well. This will help the brand build a stronger reputation as well as grow the trust that customers place in its name. Competition has grown in the automobile industry and strong brand image and brand equity have grown all the more important. The higher the level of trust, the higher will be your sales and revenue. So, while Audi is focusing on profitability, it is also investing in research and innovation as well as marketing to engage its customers better and grow its brand equity. Higher customer convenience and superior customer experience also strengthen an auto brand’s image and help it grow its influence in any market.

Audi’s mission statement says,

“We act purposefully, systematically and with our full efforts – in other words, consistently. That is why our mission is “Consistently Audi.”

Its ‘Consistently Audi‘ plan has four pillars which include a consistent focus upon customer satisfaction, leading in the electric mobility segment, a consistently connected and open digital ecosystem as well as a consistently sustainable business model. Through this strategy the brand expects to maximize both customer satisfaction and brand equity. 

Production & Distribution Network :

Audi has managed an impressive presence globally through a large and global production and distribution network. It has production plants at 18 locations in 13 countries. China is its largest market and there are four Audi production sites in China (3 operational in 2018) for local production and sales to Chinese customers. The China branch of Audi is headquartered in Beijing. Audi produces the Audi A4 L, Audi A6 L, Audi A6 L TFSIe and Audi Q5 L in Changchun at the production facility established by its Chinese partner FAW in 1988. Production of Audi Etron will also begin at this site starting 2020. 

Audi also established a second production facility in China in Foshan in 2013. This factory produces Audi A3 Sportback, the Audi A3 Sedan, the Audi Q2L and the Q2 L e-tron. There is another production facility of FAW-Volkswagen Joint Venture in the Chinese port city of Tianjin. Here, Audi makes high-efficiency 7-speed S tronic transmissions for the new Audi Q3 and other local Audi models. It has also been making the new Audi Q3 at the same plant since 2019. The company will start making Audi Q3 Sportback at this plant from 2020. Production at the Qingdao site which was established in 2018, will begin in 2020. Audi will start making A3 Sedan and A3 sportback here. 

However, Audi’s largest production plant is in Ingolstadt, Germany at its headquarters. Audi produces the A3, A4, A5 and Q2 car lines here. Apart from being Audi’s largest production facility, this site is also home to Audi’s head office and technical development division. There is one more site in Germany which produces several Audi models, located at Neckarsulm, Germany. Other countries where Audi production sites are located include India, Brazil, Mexico, Algeria, Belgium, Russia, Slovakia, Spain and Hungary.

Audi is also planning to expand the role of distributors in its business model. Audi has a global network of around 5,000 retail and service outlets. This offers Audi a strategic competitive advantage. In the form of its retail and service outlets, the company offers its customers a place where they can physically experience new technologies and physical services. As the strategic role of Audi dealers is being transformed, the focus of the brand is upon deeper market penetration. The role of dealers will increasingly shift towards the real action areas including digitalization, electric driving and mobility services. 

The new contracts Audi has formed with its dealers, also reflect how the role of dealers in its business model and international network is changing.

Internet is becoming increasingly important as a promotion and sales channel even for the auto industry. Audi is also planning to utilize the internet for deeper market penetration and faster expansion. Now customers can buy and finance Audi models online round the clock from Audi’s e-commerce website Audi ‘Approved Plus’. After its release in Germany, the e-commerce project has been expanded internationally. The site also shows the history of used cars including their service history so customers can make decisions confidently. The traditional customers still want to take a test drive before buying but with time, the internet will become a leading sales channel and with continuous innovation, Audi could use this channel for faster expansion.

Consistent Focus upon Innovation :

 The auto industry has kept growing highly competitive and challenging. Advancing technology and changing consumer preferences have also made it essential for auto brands to invest more in developing new, safer and more efficient models. For a leading brand, it would be difficult to retain its leadership position in the market without investing in research and development. Sales and growth in the auto industry also depend upon the level of focus that an auto company places on innovation and continuous improvement of its existing models. Audi has also continued to grow its focus upon research and innovation. Between 2019 and end of 2023, the company has planned to invest around €14 billion in areas including electric mobility, digital services and autonomous driving. 

The research and development ratio of Audi grew to 7.1 percent in 2018 compared to 6.4 percent in 2017. The growth in research and development ratio could be attributed mainly to the increased investment in automated and autonomous driving as well as expanding Audi’s portfolio of electrical and hybrid cars. Total research and development expenses of Audi also grew to €4.18 billion in 2018 from €3.81 billion in 2017.  The brand expects to invest upto €40 billion in technology and new product development between 2019 and 2023 which includes the €14 billion it will invest in the three main areas outlined above. The number of people engaged in R&D at Audi also grew in 2018 compared to the previous year. Number of R&D employees was 14,026 in 2018 versus 13,672 in 2017 (Audi Annual Report, 2018).

Weaknesses

Losses due to the diesel issue :

The Diesel issue of 2015-16 in which Volkswagen was forced to pay billions in fines has continued to affect VW and Audi in 2018. The issue was discovered in 2015 and soon after, it was found that Audi and VW had installed defeat devices on a  significant number of vehicles. The number of vehicles affected by the Diesel issue runs in millions. Both VW and Audi launched comprehensive internal investigation following the notice from EPA. However, the matter has continued to affect the operating profit of Audi in 2018. In 2018, certain items related to the Diesel issue reduced the operating profits of Audi by around €1,176 million. The overall losses Audi incurred in connection with the diesel issue between 2015 and 2018 was around €3.4 billion. Overall, the diesel problem significantly influenced Audi’s operating return on sales. Several senior VW and Audi officials are still being investigated in relationship with the case. 

Vehicle recalls :

Audi has been especially cautious regarding product quality and emissions as well as rider safety since the Diesel fiasco. The diesel issue affected the company financially as well as hurt its image. Such issues affect the reputation of the brand and can shake consumer confidence. VW and Audi have revamped their business strategy since the issue to strengthen brand image in the market. However, again in 2018, Audi had to make a significant number of recalls. According to consumer reports (Aug, 2019) Audi is recalling 144,092 of its 2017 and 2018 A4 and A5 models. The problem is related to a software and system that detects if the passenger is in the front seat. In 2018, the brand was forced to recall around 1.2 million vehicles in connection with an electric coolant problem. While these recalls may be essential for passenger safety, they can also affect the customers’ perception of the brand and hurt brand image and equity.

Legal problems :

Audi is facing a significant number of legal problems since the diesel issue surfaced. Not just in US, but in EU too several investigations were launched against VW and Audi officials. While the company has been able to successfully close several of these investigations, the problem still continues to affect it. Legal issues seem to be haunting Audi since 2015. Another legal problem issue affecting Audi in 2018 was an antitrust probe against it and several other brands in the Volkswagen group. According to this lawsuit filed by plaintiffs in various U.S. jurisdictions that the several VW brands had engaged in a conspiracy to increase the prices of the German luxury vehicles right since 1990s. The European commission began the proceedings in this regard in September, 2018. As a result, Audi has increased its focus on compliance worldwide and investment in the training of its employees related to compliance. Legal issue affect the operations as well as the bottomline of the company. Increasing compliance costs increase operating costs and can also cause operational problems.

Opportunities

Electric driving:

Electric mobility is one of the core focus areas in terms of research and development for Audi. The market for electric vehicles is expanding fast. Audi does not want to let this opportunity go. It already released its first fully electric model Etron in 2018. The company is planning to expand its portfolio of electric cars and hybrids significantly in the near future. It is investing billions of Euros in this area to advanced research and grow the number of hybrid and electric models. Apart from audi, its competitors including BMW have also released several hybrids and fully electric car models. The competition from Tesla, the market leader in electric cars is already intense. More and more people around the world are now interested in electric cars because of their zero environmental impact. Audi’s Etron has received an enthusiastic response in key markets. Based upon the rate at which the demand for environment friendly and emissions free cars has grown around the world, the company could significantly grow its profits in the future by investing in this area.

Autonomous driving :

All the leading auto brands are investing heavily in autonomous driving. Technology enabled changes are leading the auto industry into a new era. Between 2019 and the end of 2023, Audi plans to invest €14 billion in areas including autonomous driving, electric mobility and digital services. Moreover, the company is partnering with other brands to advance research and production faster in these areas. Volkswagen has partnered with Ford in the areas of electric as well as autonomous driving. The two brands are investing in Argo AI to bring their self driving cars to the market. They will have an equal stake in Argo Ai and will own the substantial majority of the company together. Volkswagen will invest $2.6 billion in Argo AI. Both the brands see huge growth potential in autonomous driving technology as well as related areas. Argo AI will work closely with Ford and Volkswagen to deliver the autonomous driving  technology that the two need to deliver fully integrated self driving vehicles. This is a profitable joint investment for Ford and Volkswagen and while competition to bring efficient self driving vehicles to the roads grows intense every day, the companies stand to gain a critical source of competitive advantage from their joint venture.

Digital marketing and consumer engagement:

Another critical area of investment that can help Volkswagen and Audi find faster growth and maximize customer satisfaction is digital technology. This is one of the leading areas in research and development where Audi is planning to invest billions in the next three to four years. Digitalization will also help grow customer convenience and provide a superior customer experience. Apart from marketing and customer engagement, the brand is also increasing the use of digital technologies for production as well as supply chain management and employee engagement. In the area of training, Audi has already adopted digital technologies for providing a better learning experience to its employees or dealers. 

However, digital technology is a promising area and Audi is investing in providing a seamless experience to its customers that is consistent with their digital  lives. It is trying to build a business model where the Audi products can be naturally integrated into the digital lives of the Audi riders. The level of digital technology that  fits into the cockpits of the Audi cars is also going to be higher making every Audi a distinct experience in itself. People are leading more connected lives in a highly digitalized world. Investing in digitalization and using digital technologies for engaging customers will also help the company grow customer loyalty and market share.

Partnerships :

After having grown at an impressive rate for years, the auto industry has entered a challenging phase. The demand for emissions free vehicles is growing. Apart from it, there are other, technological changes and regulatory challenges too that are making the environment challenging for auto brands. Sustaining the growth momentum and advancing into new areas is possible best through partnering with other brands. Several major brands in the auto industry are already partnering with each other in areas including mobility services, autonomous driving as well as electric driving. Such partnerships are profitable as the brands involved bring expertise and resources together which help them accelerate the pace of research and innovation and generate superior results. Volkswagen group has already partnered with Ford. This will help the brands grow their production capabilities for electric cars and autonomous driving. More such partnerships can help Audi expand its global network and sales faster. 

Threats

Intense Competition : 

Competition in the auto industry has grown intense and there are a large number of brands even in the premium segment battling for market share. Audi is leading in the world’s largest market in the premium car segment. However, competition from other brands including BMW is more intense than ever. Tesla’s fast growth in the premium electric car segment also poses a tough challenge before Audi. With higher competition, the operating costs of Audi have also grown higher since the brand will invest more in research and development as well as marketing. Moreover, to retain its leading position in the China market, it also needs to research the latest trends and technological changes and incorporate them faster into its products. Higher competitive pressure in this way is driving costs higher for Audi. There are other related challenges also arising from higher competition including difficulty in penetrating new markets and global expansion.

Regulatory pressure :

Regulatory pressures in the automotive industry are also making the business environment challenging for auto brands. Volkswagen and Audi have already been through  a very tough phase following the diesel fiasco. In some parts of the world, the rules and regulations are stiffer as compared to others. In the Western markets particularly, Audi has to be more cautious regarding compliance and otherwise risk a large loss in the form of fines as happened in the last two-three years. Growing regulatory pressures are also driving operating costs higher for auto firms. Audi is placing heavy focus upon compliance throughout the globe in all the markets where it operates. Apart from training employees in compliance, it is also making resources available that will help them remain complaint wherever the company is doing business. The trade wars between U.S. and China as well as higher tariffs have also made the situation challenging for auto firms. Both China and U.S. are important markets for Audi and particularly China which accounts for a very large part of its sales and revenue. Regulatory pressure can also hamper expansion and growth plans.

Rising Costs of Labor and Raw Material :

The costs of labor and raw materials have been on the rise for the past several years leading to growth in operating expenses for the auto-makers. The cost of goods sold for Audi has remained flat for 2017 and 2018 at close to €50 billion. However, the operating profit of the brand dropped to €3.53 billion from €4.67 billion in 2017. Personnel costs and costs of raw materials also increased slightly from 2017 to 2018. Gross profit of the brand also declined from €9.7 billion to €9.1 billion. However, with growing competition in the auto industry, it is now even critical for auto firms to invest in quality raw material as well as personnel. 

Conclusion

Audi’s position in the China auto market has continued to grow stronger over the years. The brand has expanded its portfolio of local models in recent years. China’s growth into the world’s largest auto market has proved profitable for Audi. It is Audi’s core market and a core pillar of its business model. Audi has maintained its leadership position in the China market through investment in local production as well as research and development. Moreover, technological changes have also driven the fast growth of Chinese auto industry.

 In 2019 however, the auto industry has entered a challenging phase. The demand for emissions free, electric vehicles is growing and Audi is planning to invest a large sum in this area to grow its portfolio of electric models. In 2018, it released its first fully electric model Etron. It also made several strategic changes to its business model in 2018 and continued to grow its investment in technological innovation. Its partnership with Ford in the areas of autonomous driving and electric cars is also expected to bring great results for both the brands. The effects of the 2015 diesel issue were still felt by Audi in 2018. Growing regulatory pressures have forced Audi to invest more in compliance as well as passenger safety. Despite all these challenges, its performance has remained consistent over the past several years, except for a small decline in 2018 which can be attributed mainly to the changes the brand made to its business model. Lamborghini experienced impressive growth in sales in 2018. Its Urus Super SUV was highly popular. The Audi group is planning to expand the level of collaboration inside the group. Overall, Audi has readied itself for the challenging phase the auto industry is entering. Based on its investment in research and development, the brand is poised for aggressive growth in the future and China is going to be its growth engine.

OTHER SOURCES:
Audi Annual Report 2018.