BMW AG’s carmaking profits are expected to fall below long-term targets, impacted by trade tensions and reduced sales in China. The projected profit margin of 5-7% contrasts sharply with the goal of over 8%. Competition in China and tariff costs of around €1 billion this year are significant challenges, yet BMW plans to adapt by launching new electric models and increasing North American production.
BMW AG is projected to experience significant challenges in its carmaking profits for the year, primarily due to increasing trade tensions and decreased sales in China. The automaker anticipates a profit margin ranging from 5% to 7%, a decrease from last year’s 6.3%, which marks a four-year low. BMW has consistently aimed for returns exceeding 8%.
In recent trading sessions, BMW shares witnessed a decline of up to 4.5%, with an overall drop of more than 20% year-to-date. The company now confronts heightened competition in the Chinese market, particularly from local electric vehicle manufacturers such as BYD Co. Additionally, tariffs across the US and Europe are expected to impose costs of around €1 billion this year, as stated by Chief Executive Oliver Zipse during a Bloomberg Television interview.
Despite these setbacks, BMW is preparing to launch its Neue Klasse, a new line of electric vehicles, as part of an effort to regain market share. By 2027, the company plans to introduce 40 new and updated models across all powertrain variants. Zipse conveyed optimism, stating, “We have growth ambitions because we have strong products. We look with a positive mood into 2025 despite all the political turmoil we might have.”
The escalating US tariffs are already affecting vehicles produced in BMW’s San Luis Potosi facility in Mexico. Although some levies have been temporarily postponed for compliant companies under the USMCA agreement, BMW does not fully meet local content regulations. To address this issue, the company is considering increasing its manufacturing footprint in North America, with planned investments in both the US and Mexico to meet requirements.
The automobile manufacturer observed a substantial decline in net profit by approximately 37% in 2024, falling to €7.68 billion ($8.3 billion). This downturn was influenced by a recall associated with braking systems from Continental AG. Globally, BMW’s car sales also fell by 4%, significantly impacted by a 13.4% decrease in sales within China, attributed to decreased car prices and rising production costs.
Looking ahead, BMW anticipates modest growth in car sales this year, supported by stabilizing inflation and potential interest rate reductions. However, analysts express caution regarding the company’s assumption that growth in Europe and the US will compensate for losses in China, with Citi analyst Harald Hendrikse noting that such optimism may prove unwarranted.
In conclusion, BMW faces a challenging year ahead due to declining sales in China and rising tariffs affecting profitability. The company’s anticipated profit margins fall short of its long-term goals, while competition in the electric vehicle sector intensifies. Nevertheless, BMW remains committed to adapting its manufacturing strategies and expanding its electric vehicle offerings to regain market position and fulfill growth ambitions, albeit with cautious optimism regarding sales performance in the face of ongoing uncertainties.
Original Source: www.business-standard.com
