China’s Challenges Impact BMW Profit Margins, Reports Reuters

By Rachel More

BERLIN – BMW announced on Thursday that its profit margin in the automotive sector for the second quarter fell short of expectations, impacting its share prices amid growing competition and declining demand in China.

The company’s earnings before interest and tax (EBIT) margin for its car segment decreased to 8.4%, down from 9.2% during the same timeframe last year. This result was below the 8.7% anticipated by analysts, leading to a 3.8% drop in share value.

BMW and its competitors are facing challenges in the crucial Chinese market, where domestic automakers are gaining traction with more affordable electric vehicles. This competitive pressure is compelling European brands to lower their prices.

In the first half of the year, BMW experienced a 4% decline in sales in China but fared better than rivals Volkswagen and Mercedes. The automaker remains optimistic that the economic landscape in China will stabilize in the upcoming third quarter, as stated in their communication.

As regulatory deadlines loom in China, the European Union, and certain U.S. states, the pressure is intensifying for automakers to expand their electric vehicle (EV) lineups, with bans on new fossil fuel car sales set to take effect by the middle of the next decade.

Despite the challenges, BMW is witnessing strong demand for its all-electric models, distinguishing itself from competitors. CEO Oliver Zipse highlighted the importance of e-mobility as the primary growth driver and indicated that BMW ranks as the world’s third-largest manufacturer of electric cars.

In the first half of 2024, BMW, along with its smaller brands Mini and Rolls-Royce, saw a 25% increase in sales of fully electric vehicles, totaling just over 190,000 units.

However, BMW’s finance chief, Walter Mertl, pointed out that the industry is facing broader structural challenges, noting an uptick in requests for support within the supply chain.

The company maintained its guidance for 2024, projecting a slight decrease in pre-tax earnings, contingent on the geopolitical and macroeconomic environment remaining stable. BMW’s target EBIT margin for its automotive segment is set between 8% and 10% for the full year.