BMW boss Oliver Zipse
The carmaker is apparently preparing for a recession in Europe.
(Photo: Reuters)
At first glance, things are going splendidly at BMW. The Munich-based carmaker significantly increased sales, earnings and margins in the first half of the year. Business is booming. The bottom line is a record result of 13.2 billion euros in the books, as the group announced on Wednesday. This corresponds to an increase of 74 percent.
At the same time, sales shot up by almost a fifth – to 65.9 billion euros. After 11.3 percent in the previous year, the operating return is now an impressive 24.5 percent. However, the high profit is fueled by a balance sheet effect. The full consolidation of the Chinese joint venture with Brilliance (BBA) alone increased the financial result by 7.7 billion euros.
At second glance, BMW’s result is still good. The margin in the car division without the BBA effect is still at an absolute top level at 12.6 percent after six months. Nevertheless, BMW is now dampening expectations. CEO Oliver Zipse sees “economic headwinds brewing” and cut the sales forecast on Wednesday.
Instead of similarly good sales figures as in the previous year, when BMW was able to deliver around 2.4 million vehicles, the Dax group now only expects sales to be slightly below the previous year. The reason: In the second quarter, BMW’s sales collapsed by almost 20 percent as a result of the Covid lockdowns in China, disruptions in the supply chain caused by the war in Ukraine and ongoing supply bottlenecks for semiconductors.
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This sales dampener of a good 140,000 vehicles last year cannot be “fully compensated for” in the course of the year, explains BMW. In addition, the Munich-based company is apparently preparing for a recession in Europe.
bmw
In the second quarter, the Munich company generated more sales despite a decline in sales in the past quarter.
(Photo: AP)
“Inflation and interest rate increases, which will continue to shape the macroeconomic environment in the coming months, will have an impact on demand,” the company warns in its outlook. “Accordingly, towards the end of the year, a normalization of the above-average high order backlog – especially in Europe – can be expected.”
BMW raises forecast for financial services
At the same time, BMW is sticking to its business forecast. Accordingly, BMW continues to expect an operating return on sales in the corridor between seven and nine percent in its dominant car division. The expected drop in sales should be offset by the sale of more expensive models and good deals with used cars.
In its motorcycle division, BMW expects a slight increase in sales and a margin of up to ten percent. And in the financial services business, BMW is even raising its forecast. Thanks to the good development in leasing returns, BMW is hoping for a return on equity of 17 to 20 percent by the end of the year. So far, the group has promised a maximum margin of 17 percent.
“Especially under adverse conditions, the BMW Group is characterized by a high degree of resilience,” stressed CEO Zipse on Wednesday. “Our high level of flexibility and operational performance have repeatedly proven to be an effective combination to ensure success even in rough waters”. This strength of BMW will “depend again now,” explains Zipse.
Bernstein analyst Daniel Roeska praises BMW for its strong free cash flow. In the half year, BMW generated a free cash inflow of 7.7 billion euros. For the year as a whole, Bayern are aiming for a value of at least ten billion euros. Roeska’s verdict is clear: “Outperform”. The capital market expert at BMW calls EUR 100 per share as a price target. A BMW paper currently costs a good 81 euros.
Ferdinand Dudenhöffer, head of the Center Automotive Research (CAR), is more pessimistic. Currently, all car manufacturers could charge very high prices due to the low vehicle availability and accordingly make lavish profits. From the coming year, however, the lack of chips in the industry will gradually disappear. “The days of windfall profits are coming to an end,” states Dudenhöffer. “The discounts are coming back and with it the pressure on profits.”
More: Mercedes-Benz increases sales and profits – even though the carmaker is selling fewer cars