BMW Faces Profit Challenges Amid Trade Tensions and Declining Chinese Sales
BMW AG expects automotive profits to fall short of its targets due to trade tensions and reduced sales in China, projecting a margin of 5%-7% for 2024. Despite a challenging environment, the company plans to launch a new EV line and implement strategies to enhance production in North America to address compliance issues. The outlook remains cautiously optimistic, anticipating slight growth in car sales amid ongoing market pressures.
BMW AG anticipates that its carmaking profits will remain significantly below its long-term targets in 2024. This projection is attributed to increasing trade tensions between the United States and Europe, coupled with diminishing sales in China. The automaker forecasts a margin of 5% to 7%, with a decline in this metric to 6.3%, marking its lowest performance in four years; however, BMW aspires to maintain returns above 8%. Consequently, BMW shares fell approximately 4.5% recently, contributing to a year-to-date decline exceeding 20%.
The manufacturer confronts considerable challenges, particularly in China, where fierce competition from local electric vehicle producers, notably BYD Co., is impacting market share. Additionally, US and European tariffs pose a substantial risk, with projected costs reaching €1 billion in 2024, as articulated by CEO Oliver Zipse during an interview with Bloomberg. The company is poised to initiate production of its new electric vehicle line, Neue Klasse, and plans to introduce 40 new or updated vehicles across all drivetrain variants by 2027.
In the context of US tariffs, the implications are pronounced on BMW’s manufacturing facilities in San Luis Potosi, Mexico. Although President Trump has postponed certain levies related to the USMCA trade agreement, BMW is still not in compliance with the local content requirements. Consequently, the manufacturer is evaluating strategies to increase production in North America, with investments planned in both the US and Mexico aimed at bridging the compliance gap. However, the situation may deteriorate if additional tariffs are enacted on vehicles imported from Europe.
Despite these challenges, Zipse remains optimistic, stating, “We have growth ambitions because we have strong products,” and expressing hope for 2025 despite ongoing political uncertainties. BMW reported a 37% decline in net profit for 2024, at €7.68 billion ($8.3 billion), largely impacted by a recall concerning braking systems from Continental AG. Meanwhile, global car sales decreased by 4%, chiefly driven by a substantial drop in Chinese market performance. Despite these adversities, BMW expects a slight growth in car sales this year due to stabilizing inflation and potential interest rate cuts, although the outlook remains cautiously optimistic, particularly in light of declining demand in China.
In summary, BMW AG is grappling with significant challenges that are influencing its carmaking profits, including increased tariffs, declining sales in the competitive Chinese market, and overall market volatility. The company’s projections indicate modest margins, with investments aimed at enhancing production and reclaiming market share through new electric vehicle offerings. The outlook for growth seems contingent upon market stabilization and effective compliance with trade regulations, particularly in North America. Overall, while challenges persist, BMW maintains a forward-looking stance toward future developments.
Original Source: www.business-standard.com
