Challenges Facing BMW AG: Decline in Profitability and Sales Amid Trade Tensions

BMW AG’s profits are expected to fall significantly below long-term targets due to US-EU trade tensions and declining sales in China. The company anticipates a margin between 5% and 7%, facing intense competition and a forecasted €1 billion tariff impact. Despite challenges, BMW remains optimistic about future growth with plans for new vehicle launches and aims for a slight sales increase this year.

BMW AG anticipates that its carmaking profits will fall significantly short of its long-term projections this year, primarily due to rising trade tensions between the US and Europe and declining sales in China. The company expects an automaking margin between 5% and 7% for the year, following a drop to 6.3% in 2024, the lowest figure in four years, whereas its target remains above 8%. In light of these challenges, BMW shares experienced a 4.5% decline recently, with a year-to-date decline exceeding 20%.

The German manufacturer is facing intensified competition, particularly in China, where local electric vehicle companies like BYD Co. are gaining market share. Concurrently, tariffs imposed on vehicle manufacturing in the US and Europe threaten to hinder profitability, with Chief Executive Officer Oliver Zipse estimating a €1 billion impact this year. He emphasized the company’s endeavor to regain market share through the production of an upcoming line of electric vehicles, the Neue Klasse, scheduled to commence this year, alongside plans to release 40 updated and new vehicles by 2027.

US tariffs are already affecting BMW’s operations in San Luis Potosi, Mexico, particularly due to non-compliance with local content regulations under the USMCA trade deal. In response, the company considers increasing its manufacturing presence in North America, with some pre-existing investments in the US and Mexico aimed at mitigating tariff implications. However, further complications may arise if additional tariffs on vehicles imported from Europe are enacted.

Despite these hardships, Zipse expressed optimism about the company’s future, remarking, “We have growth ambitions because we have strong products,” and noted a generally positive outlook for 2025. In 2024, BMW reported a net profit decline of approximately 37% to €7.68 billion ($8.3 billion), influenced partly by a major recall associated with brake systems from Continental AG.

Last year, BMW’s global car sales shrank by 4%, with Chinese market performance particularly disheartening, as deliveries of its core brand and Mini fell by 13.4%. Comparatively, other premium manufacturers also faced downturns, such as Mercedes-Benz’s 7% decline and Porsche’s 28% dip in China. Looking ahead, BMW cautiously anticipates slight growth in car sales this year, buoyed by stabilizing inflation and potential interest rate reductions. However, analysts express skepticism regarding the feasibility of offsetting Chinese market losses with growth in Europe and the US.

In conclusion, BMW AG is navigating a challenging landscape characterized by trade tensions and decreased sales in China, which are significantly impacting profitability. The company aims to recapture market share through the launch of new electric vehicles and strategic manufacturing adjustments in North America. While there are expectations for slight growth in sales due to favorable economic conditions, the reliance on recovery in developed markets may prove overly optimistic, as noted by industry analysts.

Original Source: www.business-standard.com