BMW Faces Declining Profits Amid Trade Tensions and Sales Drop in China
BMW AG’s profits are expected to decline below long-term targets due to trade tensions and reduced sales in China. The company forecasts a profit margin between 5% and 7%, down from previous figures. Competition from local EV manufacturers and tariff impacts are significant concerns; however, BMW plans to introduce new electric vehicles to boost market share.
BMW AG anticipates a decline in carmaking profits this year, primarily due to rising trade tensions between the US and Europe, as well as subdued sales in China. The company forecasts an automaking margin of 5% to 7%, down from 6.3% in 2024, marking a significant drop from its target of maintaining returns above 8%. Furthermore, BMW shares fell by 4.5% on Friday, reflecting a more than 20% annual drop in stock value.
The car manufacturer is encountering fierce competition from local electric vehicle (EV) manufacturers in China, particularly BYD Co., impacting its market share. Additionally, US and European tariffs pose a significant risk, with Chief Executive Officer Oliver Zipse estimating a tariff cost of approximately €1 billion this year. BMW aims to recover its market position by launching its Neue Klasse, a new line of EVs, later this year, alongside plans to introduce 40 new and updated vehicles across all drivetrain variations by 2027.
In addressing US tariffs affecting vehicles produced at its San Luis Potosi plant in Mexico, BMW is considering increasing local production to meet content requirements under the USMCA trade agreement. While President Donald Trump has delayed some tariffs, the potential for new levies on imported vehicles poses further concern. Chief Executive Officer Zipse expressed some optimism about the tariffs’ duration despite the challenges, noting, “with a cost estimate of €1 billion, we are quite safe.”
The company witnessed a substantial decline in its overall net profit, down 37% to €7.68 billion ($8.3 billion) in 2024, largely due to a recall of braking systems from Continental AG. Global car sales fell by 4%, attributed particularly to weaker performances in China, where BMW’s brand and Mini deliveries experienced a 13.4% drop. In light of this, BMW anticipates slight growth in car sales this year, driven by stabilizing inflation and potential interest rate reductions, despite ongoing challenges in the Chinese market.
Citi analyst Harald Hendrikse expressed skepticism regarding BMW’s growth assumptions in Europe and the US, indicating that these expectations may prove overly optimistic given the prevailing market conditions.
In summary, BMW AG faces significant challenges in 2024, with projected profits falling below target due to trade tensions and declining sales in China. While the company has plans to launch new electric vehicles to regain market share, uncertainty surrounding tariffs and the competitive landscape in China complicates the outlook. The anticipated modest sales growth this year hinges upon broader economic conditions, particularly in Europe and the US.
Original Source: www.business-standard.com
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