BMW expects improvement in China after profit decline

Half-year results BMW expects improvement in China after decline in profits

01.08.2024 Source: dpa 2 min reading time

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BMW is also struggling with the currently weak economy in China. However, the latest positive signals from the Far East and an upcoming model launch are fueling optimism at BMW headquarters.

BMW production in Leipzig

(Image: Christoph Busse/BMW)

The Munich-based carmaker felt the effects of tougher competition and reluctance to buy in China in the second quarter. Despite a larger share of more expensive cars, operating profit in the core business fell surprisingly sharply. Higher manufacturing and distribution costs as well as expenses for the upcoming new models had a negative impact.

However, the BMW management team, led by CEO Oliver Zipse, stuck to its annual targets as expected. The Munich-based company is expecting an improvement in the People’s Republic from the third quarter onwards, and the new version of the “bread and butter” 5 Series model is also expected to provide momentum in the second half of the year. However, the share price fell on Thursday morning.

Almost double-digit decline in profits

The group’s earnings before interest and taxes fell by almost 11 percent to just under 3.9 billion euros, as the DAX group announced on Thursday. In car manufacturing, the operating margin fell by 0.8 percentage points to 8.4 percent. Analysts had on average expected a smaller decline. The bottom line is that BMW’s profit fell by almost 9 percent to 2.7 billion euros.

BMW had already announced record-high investment spending in facilities and for research and development for this year. The new model generation “New Class” is due to launch next year, which will require corresponding advance investments. Manufacturing, distribution and administration costs also rose. BMW is also continuing to speed up the sales of its battery-electric cars, which are not yet as profitable as conventional combustion engines and plug-in hybrids.

“Under the challenging conditions in the first half of the year, our electric growth puts us ahead of our direct competitors – and at the same time we have been delivering high profitability within the target range for ten quarters,” said CEO Zipse. “With this high level of resilience, we can invest consistently in our future even when the entire industry has to navigate through rough waters.”

Sales increase for the core brand

BMW sold 618,743 cars between April and June. That was 1.3 percent less than a year earlier – but that was mainly due to the small car brand Mini, where BMW is currently introducing many new models. There was an increase in deliveries of the more profitable cars of the core BMW brand by 2.2 percent.

Nevertheless, group sales fell slightly by 0.7 percent to 36.9 billion euros in the last quarter. In China in particular, increased competition and cautious consumer sentiment had a negative impact on revenues, it was said. There is a tough price war in the People’s Republic, especially for electric cars, but increasingly also in the segment of more expensive combustion engines. This is because the wealthy Chinese are currently less generous than before due to the real estate crisis in the country.

However, BMW is expecting an improvement in China as early as the third quarter, when the economic situation should stabilize. The new 5 Series model is also expected to provide momentum in the second half of the year. Added to this are the new Mini models.

Other companies are also currently having problems in China, including arch-rival Mercedes and the Volkswagen Group with its core brand and subsidiaries Audi and Porsche. China has long been the major growth engine with high margins for German car companies. For several years, however, tariff disputes in global trade and economic problems in China have been slowing things down. German manufacturers are often having a hard time in the country’s rapidly growing electric car segment in particular, because local rivals produce more cheaply.

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