BMW AG Faces Declining Profits Amid Tariffs and China Market Challenges
BMW AG’s carmaking profits are expected to fall below long-term targets due to trade tensions and declines in China. The manufacturer anticipates a margin of 5-7% this year, down from 6.3% in 2024, while facing tariff costs of €1 billion. Despite challenges, the company plans to launch a new line of electric vehicles to reclaim market share. Analysts express caution regarding growth projections.
BMW AG has announced that its automotive profits are expected to fall significantly below its long-term objectives this year, primarily due to rising trade tensions between the United States and Europe, along with declining sales in China. The German automotive manufacturer anticipates an automaking margin between 5% and 7% for the year, which follows a drop to 6.3% in 2024—the lowest margin recorded in four years. Historically, BMW has aimed to maintain carmaking returns above 8%.
On Friday, BMW shares decreased by as much as 4.5%, reflecting a more than 20% drop over the previous year. The automaker faces considerable challenges, specifically in China, where it competes against local electric vehicle manufacturers such as BYD Co., which are capturing a growing market share. Additionally, tariffs imposed in the United States and Europe are forecasted to cost BMW approximately €1 billion this year, as indicated by Chief Executive Officer Oliver Zipse in an interview with Bloomberg Television.
To address these challenges, BMW plans to regain market share by introducing its Neue Klasse, a new series of electric vehicles (EVs) commencing production later this year. The company expects to launch 40 new and updated vehicles across all drivetrain types by 2027. “We have growth ambitions because we have strong products,” stated Zipse. He added, “We look with a positive mood into 2025 despite all the political turmoil we might have.”
The company’s operations in San Luis Potosi, Mexico, are already experiencing the impact of U.S. tariffs. Although former President Donald Trump postponed some levies for companies adhering to the USMCA trade agreement, BMW does not meet the local content requirements. Consequently, the automaker is exploring options to enhance local production in North America to ensure compliance, according to Production Head Milan Nedeljkovic. Planned investments in the U.S. and Mexico will assist in closing this compliance gap.
Nevertheless, the outlook could deteriorate should Trump implement additional tariffs on vehicles imported from Europe, where BMW produces its premium sedans. Nonetheless, Zipse expressed cautious optimism, suggesting, “We don’t think that all these tariffs will last very long, though some of them might last longer.” He noted that despite the anticipated €1 billion cost, “we are quite safe.”
In 2024, BMW’s overall net profit saw a 37% decline, amounting to €7.68 billion ($8.3 billion), adversely impacted by a recall related to braking systems from Continental AG. The company’s global car sales fell by 4% last year, largely due to weak performance in China, where deliveries of BMW and Mini vehicles dropped by 13.4%. In comparison, competitors like Mercedes-Benz and Porsche experienced declines of 7% and 28% in China, respectively.
Looking ahead, BMW is cautiously optimistic about a slight increase in car sales this year, driven by stabilizing inflation and moderate interest rate reductions, although challenges in China persist. Citi analyst Harald Hendrikse remarked, “We are concerned that BMW is assuming growth in Europe and the US to offset declines in China – this may prove optimistic.”
In conclusion, BMW AG is navigating a challenging landscape marked by falling profits, fluctuating sales, particularly in China, and the impact of tariffs. Despite these difficulties, the company has plans to introduce a new line of electric vehicles and invest in North American production to improve compliance with trade regulations. While growth in sales is anticipated, critical market conditions necessitate cautious optimism for the future.
Original Source: www.business-standard.com
