BMW AG forecasts carmaking profits below long-term targets, hindered by trade tensions and declining sales in China. The automaker predicts a margin of 5% to 7% and plans to introduce new electric vehicles. Despite recent losses and ongoing challenges, there is cautious optimism for slight sales growth this year.
BMW AG anticipates that its carmaking profits will fall short of long-term targets this year due to rising trade tensions between the US and Europe and reduced sales in China. The company projects an automaking margin of 5% to 7% for the year, a decline from the previous year’s 6.3%, marking the lowest margin in four years. BMW aims to maintain returns above 8%.
The stock of BMW experienced a drop of 4.5% on Friday and has seen a substantial decrease of over 20% during the previous year. The manufacturer is contesting a challenging market characterized by stiff competition in China. Local electric vehicle producers like BYD Co. have arisen, further complicating BMW’s position. Furthermore, tariffs in both the US and Europe are expected to cost the company approximately €1 billion this year, as stated by Chief Executive Officer Oliver Zipse in a Bloomberg Television interview.
To regain market share, BMW plans to commence production of its Neue Klasse line of electric vehicles later this year, with the intention of introducing 40 new or updated vehicles across various drivetrain variants by 2027. Zipse expressed optimism despite ongoing political instabilities, underscoring their growth ambitions backed by strong products.
The tariffs are particularly impacting BMW’s vehicle manufacturing in San Luis Potosi, Mexico. Although the US President postponed certain levies for compliant companies under the USMCA trade deal, BMW has not fully complied with local content regulations. In response, the company intends to increase its manufacturing footprint in North America, as noted by production head Milan Nedeljkovic.
The overall situation may escalate if additional tariffs on European imports are implemented. Nonetheless, Zipse conveyed a belief that most tariffs would not persist for an extended period, stating: “We are quite safe” given the company’s €1 billion cost estimate.
In 2024, BMW’s net profit dropped approximately 37% to €7.68 billion ($8.3 billion), largely due to a recall related to braking systems. The company’s global car sales decreased by 4%, driven by a 13.4% decline in China amid higher manufacturing costs and falling car prices. Comparatively, automakers such as Mercedes-Benz Group AG and Porsche AG also reported similar declines in the Chinese market.
Looking ahead, BMW forecasts slight growth in car sales for this year due to stabilizing inflation and anticipated interest rate cuts. However, challenges in the Chinese market remain a significant concern. Notably, analyst Harald Hendrikse from Citi warned that relying on growth in Europe and the US to counterbalance declines in China may be overly optimistic.
In summary, BMW AG is navigating a tumultuous environment characterized by trade tensions, declining sales in China, and increased competition. The automaker anticipates carmaking margins below its long-term targets and plans strategic production shifts in North America to address tariff impacts. Despite recent financial setbacks, BMW is poised to introduce new electric vehicle lines and expects some sales recovery this year, albeit cautiously.
Original Source: www.business-standard.com
