BMW AG’s carmaking profits are expected to fall below targets due to US-EU trade tensions and weak Chinese sales. The automaking margin may drop to 5%-7%, significantly lower than the desired 8%. The company is launching new electric vehicle models and reevaluating production locales in response to tariffs and competition.
BMW AG anticipates that its carmaking profits will significantly fall short of long-term goals due to rising trade tensions and declining sales in China. For the current year, the automaking margin is projected to be between 5% and 7%, a drop from the 6.3% recorded in 2024, marking the lowest figure in four years. The company aims to maintain carmaking returns above 8%. Share prices for BMW dropped by up to 4.5% on Friday, reflecting a year-to-date decline exceeding 20%.
The company faces intensified competition in China, particularly from electric vehicle manufacturers like BYD Co., capturing significant market share. Additionally, tariffs between the US and Europe could cost BMW approximately €1 billion this year, as indicated by Chief Executive Officer Oliver Zipse in an interview. To regain market presence, BMW is launching production of its Neue Klasse, a new electric vehicle line, later this year and plans to introduce 40 new and updated models by 2027.
Tariffs are already impacting BMW vehicles produced in San Luis Potosi, Mexico, particularly in relation to compliance with the USMCA trade deal’s local content rules. In response, BMW is considering increasing manufacturing in North America as part of strategic adjustments to meet trade obligations. Some planned investments in the US and Mexico are expected to close the compliance gap.
Further challenges may arise if the US proceeds with additional tariffs on European imports, which are critical for BMW’s flagship sedans. Despite these uncertainties, Zipse expressed optimism about the future, maintaining that not all tariffs will persist. He reassured investors that with a cost impact estimated at €1 billion, the company remains protected.
In 2024, BMW’s overall net profit fell by approximately 37% to €7.68 billion ($8.3 billion), a decline attributed to a recall affecting braking systems from Continental AG. Global car sales decreased by 4%, with a notable 13.4% drop in China amid declining car prices and elevated manufacturing costs. Analysts have raised concerns about BMW’s growth expectations, highlighting that growth in Europe and the US might not sufficiently counterbalance losses in the Chinese market. Citi analyst Harald Hendrikse noted this potential risk in recent commentary.
In conclusion, BMW AG is grappling with significant challenges affecting its profitability, primarily due to escalating tariffs and a decrease in sales, particularly in the Chinese market. The automaker projects margins lower than desired, even as it plans to introduce new electric vehicles and expand manufacturing in North America. Despite expressing cautious optimism, analysts warn that the anticipated growth in other markets may not be enough to offset declines in China. BMW’s strategic adjustments will be critical to navigate these difficult circumstances moving forward.
Original Source: www.business-standard.com
