- BMW disappointed with falling profits
BMW, the automaker, is reporting significantly lower profits due to decreased demand in China and increased investments, but it is maintaining its forecast for the current year, unlike its competitors Mercedes-Benz and Audi. CEO Oliver Zipse stated in Munich that the entire industry is navigating "choppy waters." However, BMW is now expecting a slight market recovery in China and a boost from new models that are starting to roll out.
Net income after taxes plummeted by nearly 9% in the second quarter to 2.7 billion euros. The stock market reacted sharply: the stock dropped by about 5% upon the release of the figures, reaching its lowest level since November 2022.
Sales in the second quarter fell by 1% to 619,000 cars due to a model change for the entire Mini family. However, the BMW brand saw an increase, with sales of electric and luxury vehicles growing by double digits. "Even in headwinds, BMW sets itself apart positively from the competition," said Zipse, referring to the competition.
Intense competition in China is weighing on earnings
The group's revenue fell by nearly 1% in the second quarter to 36.9 billion euros. "The market development in China in the first half of the year fell short of our expectations," said CFO Walter Mertl. Intense competition there and cautious consumer sentiment are heavily impacting earnings. However, a reduction in interest rates in China and other government measures could lead to stabilization in the current quarter.
Operating profit before interest and taxes (EBIT) fell by nearly 11% to 3.9 billion euros. The EBIT margin fell to 8.4% of sales in the second quarter, remaining within the target range of 8 to 10 percent that BMW also confirmed for the full year. Mercedes-Benz and Audi have recently adjusted their profit expectations downward. However, BMW's quarterly net income after taxes was only 2.7 billion euros, which is 8.6% less than in the previous year.
BMW is investing heavily in research and development
The main reason for the decline in profits is higher spending: BMW is investing significantly more in the new construction and renovation of car plants, new battery factories, and model launches. At the same time, research and development expenses are rising sharply. From the end of next year, the first electric vehicles of the "New Class" will roll off the assembly line in Debrecen, Hungary, and Munich, with entirely new batteries and software.
Electric vehicles are still not as profitable as gasoline and diesel vehicles. With an increasing share of over 17% of total sales, this is noticeable.
It's also not going well in the credit and leasing business. While the number of new contracts has increased significantly, used car prices continue to fall, making it more difficult to sell lease returns. Additionally, the number of credit defaults has increased.
BMW expects slightly more car sales than last year for the full year. However, pre-tax profits are expected to decline slightly in 2024. The board cited higher research and development costs, rising personnel costs, and further price declines in the used car market as reasons.
Zipse criticized the EU Commission, stating that to significantly reduce CO2 emissions today, not just in the future, eFuels should be supported as quickly and broadly as possible. To do this, Brussels would also need to accelerate the ramp-up of CO2-neutral fuels and make their use practical.
The European Union plays a role in the discussion about eFuels, as BMW's CEO, Oliver Zipse, has criticized the EU Commission for not accelerating their support and ramp-up fast enough.
The intense competition that BMW is facing in China is not only affecting its earnings but is also a concern for other automakers within the European Union.
