BMW’s key automotive unit reported slightly lower-than-forecast profitability in the second quarter, impacted by heightened competition and weaker consumer sentiment in China. The German luxury car maker’s operating margin in the division was 8.4%, missing the company-compiled consensus of 8.7% and landing at the lower end of its 8% to 10% full-year target range.
“In the face of difficult conditions in the first half of the year, we have continued to outperform our competitors in the electric sector and have achieved high profitability for ten consecutive quarters within our annual target range,” commented Chairman Oliver Zipse.
Competition in China has intensified as local manufacturers ramp up production of new, cheaper models, sparking a price war. However, BMW expects the economic situation in China to begin stabilizing in the third quarter. Sales in China have been tough due to intense competition from local manufacturers with faster software development cycles. Chinese consumers, lacking brand loyalty, quickly switch brands for better prices and new features, noted Third Bridge analyst Orwa Mohamad. While Chinese manufacturers are gaining traction in the West, Mohamad believes they pose little threat to BMW in Europe for the next two years, as Chinese carmakers focus on budget EVs rather than the premium market where BMW excels.
Despite the competition, BMW’s revenue increased in the first half of the year due to demand for its fully electric vehicles and higher-priced BMW and BMW M models, both of which saw double-digit growth. Overall deliveries of BMW, Rolls-Royce, and Mini brands slipped by 0.1%, but deliveries of fully electric vehicles rose by 24.6%.
BMW has heavily invested in its manufacturing plants, premium cars, and technology to accelerate its electrification plans. Research and development costs rose sharply as the company spent on electrifying and digitalizing its vehicle fleet and continued developing its new Neue Klasse EV lineup. “We remain clearly on course for our largest future project, the Neue Klasse, with which we will raise BMW to a completely new technological level as of next year,” Zipse said.
The company’s second-quarter group earnings before interest and tax (EBIT) margin fell to 10.5% from 11.3%, with consensus expecting 10.6%. Group EBIT dropped to 3.88 billion euros ($4.2 billion) from $4.7 billion a year earlier, while revenue slipped 0.7%, slightly below the expected $40.4 billion.
Despite these challenges, BMW expects sustained demand for its premium cars and anticipates positive momentum in the second half from its new BMW 5 Series and the ramp-up of new Minis. The company still forecasts slight growth in worldwide customer deliveries in 2024. The automotive EBIT margin is expected to finish the year between 8% and 10%, with group pretax earnings falling slightly.
