BMW Faces Profit Challenges Amid Tariffs and Declining Sales in China

BMW AG predicts lower carmaking profits for 2024, with margins expected between 5% and 7%. Challenges include competition in China, tariffs costing €1 billion, and a significant decline in global sales, particularly in the Asian market. BMW aims to launch new EVs as a growth strategy while facing cautious market conditions.

BMW AG anticipates that its carmaking profits will fall short of long-term targets in 2024, primarily due to escalating trade tensions and declining sales in China. The automaker projects a margin of 5% to 7% this year, down from 6.3% in 2023, significantly below its target of maintaining returns above 8%. Shares have already dropped over 20% in the past year, as investors react to these challenges.

The company faces fierce competition in China, particularly from local electric vehicle (EV) manufacturers such as BYD Co., which are capturing market share. Additionally, tariffs imposed between the US and Europe are expected to incur about €1 billion in costs this year, according to CEO Oliver Zipse. As a countermeasure, BMW is preparing to launch its Neue Klasse EVs later this year to regain market position.

Zipse expressed optimism for the future, stating, “We have growth ambitions because we have strong products.” He indicated that the company aims to release 40 new models across all drivetrains by 2027. However, US tariffs are currently impacting production in Mexico, where BMW struggles to meet local content requirements under the USMCA trade agreement, leading the company to consider relocating more manufacturing to North America.

Despite these adversities, Zipse remains hopeful that the tariffs will not be permanent and reassured stakeholders about the company’s financial resilience, saying, “We are quite safe.” BMW’s net profits suffered a 37% decrease in 2024, totalizing €7.68 billion, primarily impacted by a recall of braking systems.

Global car sales for BMW declined by 4% last year, exacerbated by a 13.4% drop in China due to falling prices and rising production costs. While the company expects slight growth this year, concerns loom about the viability of this assumption, particularly in light of continuing struggles in the Chinese market and inflationary pressures.

In summary, BMW AG’s profitability is under pressure due to declining sales in China and rising tariffs. The company expects profit margins between 5% and 7%—well below its 8% target—while competition from local EV producers complicates the recovery. Plans for a new EV lineup may aid in reclaiming market share, but analysts remain cautious regarding growth assumptions. Overall, BMW is navigating a challenging landscape that necessitates strategic adaptations.

Original Source: www.business-standard.com