BMW AG Faces Profit Challenges Amid Trade Tensions and Sales Decline
BMW AG forecasts a decline in carmaking profits below long-term targets due to trade tensions and decreasing sales in China. The company projects an operating margin of 5%-7% for this year, having fallen to 6.3% in 2024. Market conditions, particularly in China, remain challenging, prompting strategic responses to reclaim market share and comply with trade regulations.
BMW AG anticipates that its carmaking profits will not meet long-term targets this year due to escalating trade tensions and weak sales in China. The German company projects an operating margin of 5% to 7%, following a decline to 6.3% in 2024, the lowest it has experienced in four years. BMW traditionally aims for margins above 8%.
On the stock market, BMW shares plummeted by as much as 4.5% recently and have decreased over 20% in the last year. The company is confronting challenges in China, where local electric-vehicle manufacturers such as BYD Co. are gaining ground. Concurrently, the impact of tariffs in the US and Europe is expected to cost BMW around €1 billion this year, as noted by CEO Oliver Zipse during an interview with Bloomberg Television.
BMW plans to reclaim market share with the introduction of its Neue Klasse line of electric vehicles (EVs) later this year and aims to launch 40 new and updated vehicles by 2027. CEO Zipse expressed 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 company is already experiencing tariff impacts on vehicles produced in San Luis Potosi, Mexico. Although previous tariffs under the USMCA trade deal were postponed for compliant companies, BMW struggles to meet local content requirements. Consequently, measures are being considered to increase manufacturing in North America.
Despite plan adaptations, challenges remain, particularly if tariffs on European imports are implemented. Regarding the overall financial outlook, Zipse expressed that while some tariffs might persist, the company remains in a secure position despite estimating costs of €1 billion.
The overall net profit for BMW fell by roughly 37% in 2024 to €7.68 billion ($8.3 billion), significantly impacted by a recall associated with braking systems from Continental AG. Additionally, BMW experienced a 4% drop in global car sales, with a substantial decline of 13.4% in China amid regional price reductions and rising manufacturing costs.
Looking ahead, BMW hopes for slight growth in car sales this year, attributing this to stabilizing inflation and potential interest rate reductions, even though challenges in China persist. Analyst Harald Hendrikse from Citi noted concerns regarding BMW’s expectations for growth in Europe and the US to counterbalance declining sales in China, describing this outlook as potentially optimistic.
In conclusion, BMW AG is currently facing significant challenges that hinder its ability to meet projected profit margins, notably influenced by trade tensions and a decline in sales in China. Despite these hurdles, the company remains committed to its growth ambitions, notably through the introduction of new electric vehicle models and strategic adjustments in manufacturing locations. Nevertheless, the fluctuating global market conditions and tariffs present uncertainties that may affect future performance.
Original Source: www.business-standard.com
