The Struggling Start for BMW: China's Impact on BMW's Profits
A Rough Kickoff for BMW
China's Permitting of BMW's Profit Decline - Prediction Verified - BMW's profits predicted to take a hit due to China's leniency
In the first quarter of 2023, Munich-based carmaker BMW struggled, reporting a net profit of 2.2 billion euros, a 26.4% decrease compared to the previous year.
China's Role in BMW's Dismal Performance
China's sluggish business dealt a significant blow to BMW's results. The world's largest single car market, however, isn't the only culprit. U.S. tariffs are expected to have a more substantial impact in the upcoming quarters. Despite the challenging environment, BMW remains relatively stable compared to its German competitors, who have endured steeper declines.
In light of this, CEO Oliver Zipse emphasized that the company's strategy, products, and flexibility are more crucial than ever. By meeting varying global customer needs, BMW aims to achieve robust results and maintain its course towards annual targets. A positive sign comes from the strong order intake, which boosts his confidence.
Prognosis: Staying the Course
Despite the dire figures, BMW is sticking to its prognosis, originally shared in March. The carmaker predicted a pre-tax profit at last year's level, approximately 11 billion euros. This optimistic stance is fueled partially by the anticipation that tariffs will not be permanent. Finance chief Walter Mertl hints at imminent reductions, with the heaviest impact expected in the current second quarter, although exact dates remain undisclosed. Zipse also expects the reinstatement of the North American free trade zone, which would be advantageous to BMW.
First-Quarter Sales Figures: A Mixed Bag
BMW's worldwide sales, inclusive of Mini and Rolls-Royce, dropped 1.4% to 586,000 vehicles. Seven-point-eight percent fewer than the previous year, the turnover amounted to 33.8 billion euros. Positive growth outside China gave BMW grounds for optimism, and a return to a yearly level of 700,000 vehicles is expected.
BMW is not alone in its profit decline and has fared better than some of its German counterparts. Mercedes suffered a 43% drop in the first quarter, while Audi reported a net profit of just 630 million euros, a 14.4% decrease. BMW's decline appears less dramatic, and unlike its competitors, BMW manages to maintain its workforce at last year's level.
The Automotive Industry's Bleak Outlook
The overall mood in the German automotive industry is grim. The industry faces two significant challenges: fierce competition in China and uncertainties surrounding President Donald Trump's trade policies in the U.S. Even American carmaker Ford has acknowledged billions in charges due to Trump's trade policies.
BMW produces roughly 400,000 vehicles annually in the U.S., with nearly half being exported, making it the largest US auto exporter by value. Yet, this necessitates the import of other vehicles and parts into the United States. Higher tariffs significantly impact BMW.
While BMW leverages its long-standing presence in the U.S. to make its voice heard, the company cautions against expecting the same business results, as new tariffs or extended existing ones may affect the final outcome.
The Role of Electric Vehicles and Localization
Although BMW faces headwinds in China's traditional automotive market, electric vehicle (EV) sales are a bright spot. Global EV sales surged by 32.4%, with particularly strong growth in Europe. In China, more than half of MINI models sold are fully electric, demonstrating BMW's e-mobility strategy gaining traction even in an adverse market. By localizing technology and offerings, BMW aims to strengthen its competitiveness amid the rise of domestic brands and shifting consumer preferences.
- BMW's employment policy remains focused on meeting varying global customer needs, despite challenges in the first quarter, aiming to maintain the course towards annual targets and achieve robust results.
- The upcoming quarters are expected to see a more substantial impact from U.S. tariffs on BMW, in addition to the sluggish business in China that already contributed to BMW's declining profits.
- BMW's production line includes sports vehicles, such as BMW models, along with MINI and Rolls-Royce, with a significant portion of the vehicles produced in the US being exported globally.
