BMW Q2 Profit Margin Falls Short Amid China Competition

During the second quarter on Thursday, BMW reported a lower-than-expected profit margin in its core automotive segment, impacting its shares as heightened competition and weaker demand in China weigh on the sector.

The German automaker’s earnings before interest and tax (EBIT) margin in its car segment fell to 8.4% from 9.2% in the same period last year, falling short of the 8.7% expected by analysts, according to a company-compiled consensus. The shares were trading 3.8% lower at 0727 GMT.

BMW Faces Challenges in China:

BMW and its peers are under pressure in their key market, China. Local carmakers are gaining share with lower-cost electric vehicles, forcing their European rivals to slash prices.

The Munich-based carmaker saw a 4% slump in its China sales in the first six months but performed better in the region than Volkswagen and Mercedes. In a statement, BMW said it expects the economic situation in China to stabilize in the third quarter.

Strong EV Growth:

Carmakers are under pressure to ramp up their electric vehicle offerings as regulatory deadlines from China to the European Union and some U.S. states will begin to ban sales of new fossil fuel-emitting cars from the middle of the next decade. BMW, whose heavy investment in model revamps also weighed on second-quarter results, is seeing strong demand for its all-electric models, setting the company apart from its rivals.

“In our view, e-mobility will continue to be the core drive technology of the future and our primary growth driver,” CEO Oliver Zipse said in a speech to investors, adding that BMW was the world’s third-largest e-car manufacturer. BMW and its smaller brands, Mini and Rolls-Royce, increased sales of purely electric cars by a quarter to just over 190,000 in the first half of 2024.

Supply Chain and Future Outlook:

Pointing to broader structural headwinds in the auto sector, finance chief Walter Mertl said BMW was seeing additional requests for support within its supply chain.

The group held its guidance for 2024, flagging a slight decline in pre-tax earnings, assuming that the geopolitical and macroeconomic situation does not deteriorate, Mertl said. The company’s full-year target range for the EBIT margin in its car segment is 8-10%.