BMW Reports a Profit of 4.8 Billion Euros – Experts Criticize Strategy
Sales, turnover, earnings – the car manufacturer delivers top figures. But industry experts criticize too timid electrical plans and an old-fashioned sales maxim.
BMW earns splendidly again. After an operating loss of 666 million euros a year ago, the Munich-based company is now reporting an operating profit of more than five billion euros for the second quarter. The bottom line is an increase of 4.8 billion euros on the balance sheet.
The margin in the car division is a proud 16 percent. Since BMW was able to generate even more profit proportionally with motorcycles and financial services, the operating return for the entire group is almost 18 percent. The free cash flow – in the previous year still clearly negative – turned noticeably into positive territory at 4.9 billion euros.
Neither the corona crisis nor the industry-wide bottleneck in computer chips can currently slow the Bavarians. Sales in the first half of the year soared to 55.4 billion euros – an increase of more than 28 percent compared to the previous year. The basis of success is a new sales record.
Within the first six months, the core brand BMW alone sold around 1.18 million vehicles. This puts the Munich-based company just ahead of its eternal rival Mercedes-Benz (1.16 million cars) and leads the field among premium manufacturers.
BMW Daimler Audi Automobile Industry Oliver Zipse Mercedes-Benz Stellantis Volvo
“In the first half of the year, the high demand from customers had a positive impact on our business development and led to significant growth,” says BMW boss Oliver Zipse. At the same time, the manager prepares employees and investors for difficult months: “In view of various risks such as raw material prices and semiconductor supply, the second half of the year is likely to be more volatile for the BMW Group.”
In any case, experts consider BMW’s strong quarterly figures after the release of provisions in connection with EU antitrust proceedings to be positively oversubscribed. Arndt Ellinghorst from the investment house Bernstein sees the adjusted car margin before interest and taxes (EBIT) of the Munich company at only 9.8 percent – and thus behind that of Mercedes (11.4 percent) and Audi (11.3 percent).
Industry experts criticize BMW strategy
While other vehicle manufacturers such as Stellantis and Daimler have recently raised their return targets to a double-digit level, BMW is sticking to its forecast. Accordingly, the Munich-based company should achieve an operating margin of up to nine percent with its car division at the end of the year. According to industry observers, the reluctance is also due to a false basic maxim, in which volume growth is classified as more important than profit.
BMW is determined to increase its car sales to three million units per year before the end of the decade. Not only Bernstein analyst Ellinghorst considers this goal to be “old school” and no longer appropriate. Ferdinand Dudenhöffer also sees BMW on the wrong track and doubts how sustainable the group’s results are.
Specifically, the head of the Center Automotive Research (CAR) criticizes that BMW is “stuck” in an old-fashioned trading system when it comes to sales, while competitors such as Mercedes, Audi and Volvo have long been relying on the so-called agency model. Customers no longer conclude leasing or purchase contracts with individual car dealerships, but directly with the vehicle manufacturers. The advantage for car manufacturers: they can set uniform prices for their new cars and have direct access to customer data.
However, BMW is acting “not very innovatively” here, says Dudenhöffer. Rather, he observes that Bavaria has been granting higher discounts than the competition for years. In fact, in July, for example, the BMW 3 Series (list price: 45,750 euros) with a discount of 16 percent was traded through internet brokers. For comparison: Audi’s rival model in this segment, the A4 at almost the same list price, was only offered twelve percent cheaper.
The difference is even clearer in the case of the compact SUVs. The BMW X1 was recently offered at a discount of 20.1 percent, whereas the discount on the Audi Q3 was only 11.5 percent. “Sales that are stable in value and shape the brand does not seem to be the top priority at BMW, but rather the principle of selling more with higher discounts‘ ”, says Dudenhöffer. “BMW runs the risk of damaging the brand’s stable value in the long term and falling behind the competition in the premium segment.”
Timid electrical course
From the point of view of Jürgen Pieper, an analyst at Bankhaus Metzler, BMW is currently “good to very good”, but the group has turned from a pioneer to a latecomer in electric drives. “Volkswagen and Daimler are uncompromisingly accelerating their electric course. At BMW, on the other hand, you always have the feeling that the company is only turning around half-heartedly, ”stated Pieper.
BMW is not consistent enough. “While others are already using pure electricity architectures without any ifs or buts, BMW will only be coming four years from now with an electric platform on which combustion engines can still be built,” criticized Pieper. The Power of Choice strategy is ultimately an expression of a certain weakness in decision-making. “At BMW, the combustion enthusiasts still seem to be in the majority. At some point, however, you have to confess, ”says Pieper.
Mercedes recently announced that it would only develop purely electrical architectures from 2025. The Stuttgart-based company is preparing for a scenario in which the group will only sell electricity from 2030. The proportion of electric models is expected to skyrocket to 50 percent by 2025. Audi is similarly ambitious. The Ingolstadt-based company wants to bring the last new combustion engine onto the market in the middle of this decade, except in China. With model running times of around seven years, this would mean the end for 2033.
BMW is therefore only calculating with a share of battery cars in total sales of 50 percent by 2030. CEO Zipse recently even warned of a downward trend if the company said goodbye to the internal combustion engine too early. If a manufacturer no longer has a diesel or gasoline engine on offer in 2030, it will lose half the market volume. In contrast to Daimler, Zipse sees no reason to start mass production of battery cells.
A mistake, believes capital market expert Pieper. “BMW too has to develop a purely electrical platform and manufacture a large number of battery cells itself, otherwise you will only play a minor role for years to come.” The analyst assumes that there will soon be delivery problems with battery cells similar to those with computer chips. Without its own capacities, BMW threatens to become dangerously dependent on Asian suppliers such as CATL.