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Otto Flugmaschinenfabrik was founded in 1910 by Gustav Otto in Bavaria. The firm was reorganized on 7 March 1916 into Bayerische Flugzeugwerke AG. This company was then renamed to Bayerische Motoren Werke (BMW) in 1922. However the name BMW dates back to 1913, when the original company to use the name was founded by Karl Rapp (initially as Rapp Motorenwerke GmbH). The name and Rapp Motorenwerke's engine-production assets were transferred to Bayerische Flugzeugwerke in 1922, who adopted the name the same year. BMW's first product was a straight-six aircraft engine called the BMW IIIa, designed in the spring of 1917 by engineer Max Friz. Following the end of World War I, BMW remained in business by producing motorcycle engines, farm equipment, household items and railway brakes. The company produced its first motorcycle, the BMW R 32 in 1923.

BMW became an automobile manufacturer in 1928 when it purchased Fahrzeugfabrik Eisenach, which, at the time, built Austin Sevens under licence under the Dixi marque.[5] The first car sold as a BMW was a rebadged Dixi called the BMW 3/15, following BMW's acquisition of the car manufacturer Automobilwerk Eisenach. Throughout the 1930s, BMW expanded its range into sports cars and larger luxury cars.

Aircraft engines, motorcycles, and automobiles would be BMW's main products until World War II. During the war, against the wishes of its director Franz Josef Popp,[citation needed] BMW concentrated on aircraft engine production using as many as 40,000 slave laborers. These consisted primarily of prisoners from concentration camps, most prominently Dachau. Motorcycles remained as a side-line and automobile manufacture ceased altogether.

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