Unlike its predecessors, the E39 M5 was not handbuilt at the BMW M GmbH factory; in order to increase production, it was produced on the same assembly line as the normal E39 5-series at the Dingolfing factory in Germany. In fact, the E39 M5 was almost not built at all. BMW believed that the 210 kW (286 PS; 282 bhp) 540i was powerful enough, but when Jaguar released the 272 kW (370 PS; 365 bhp) XJR, and Mercedes-Benz introduced the W210 E55, which had over 260 kW (354 PS; 349 bhp) BMW responded to the competition with a 294 kW (400 PS; 394 bhp) M5.
The E39 M5 had a highly tuned V8 engine based on the M62 engine called the S62, which displaced 4.9 litres and produced 294 kW (400 PS; 394 bhp). The engine featured a 7,000 rpm redline, Double-VANOS, which varies the intake and exhaust valves timings for both cylinder banks, and individual throttle butterflies for each of the cylinders, allowing for a much faster engine response time.