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. That 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.
“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 decline in sales is to be offset by the sale of more expensive models and good business 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 the successful course even in rough waters.” It will “now depend again on this strength of BMW”, explains Zipse.
Bernstein analyst Daniel Röska 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. Röska’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.”
However, there is still no sign of this in the balance sheets. In the first half of the year, Volkswagen, Mercedes-Benz and BMW were able to increase their sales compared to the previous year from 252 to 269 billion euros; the net result of the three groups even shot up from 22.6 to 30.6 billion euros.
BMW prepares for lack of gas
According to BMW CEO Zipse, what happens next depends crucially on the supply situation for semiconductors – and the energy supply in Europe. Similar to Mercedes, BMW is preparing intensively for a possible gas shortage. “Extensive investigations are currently being carried out at our locations in Germany and Austria,” explains Zipse.
A special team from the group is examining how BMW can reduce its gas consumption in all areas and across all energy sources. “We can imagine compensating for the amount of electricity generated by the gas-powered combined heat and power plants by purchasing external electricity,” said Zipse.
However, the manager did not provide any information on the exact amount of natural gas that BMW could save. This does not do justice to the complexity of the local structures. According to its own statements, the Dax group has given its employees specific tips on how to actively reduce gas and electricity consumption at work and at home.
“It is important to us that we keep a holistic view of all the changes in our environment,” says Zipse. “We plan strategically in scenarios.” That also means that the people in Munich don’t follow every trend.
BMW wants to double sales of purely electric models this year. The next big leap in technology is planned for 2025. Then the “new class” will start, the car manufacturer’s first all-electric platform. The first models on the architecture should be a compact sedan in the style of the BMW 3 Series and a sporty SUV. By the end of the decade, vehicles from the “New Class” should account for more than half of total sales.
More: Mercedes-Benz increases sales and profits – even though the carmaker is selling fewer cars