Bavaria quake

Down 84%! Drastic profit slump at BMW

(Bild: BMW)

Problems with a brake system supplied by Continental and the persistent market weakness in China: German car manufacturer BMW's profits plummeted in the third quarter.

In concrete terms, the company's bottom line was 83.8 percent lower than a year ago, or just 476 million euros. But that looks worse than it is. BMW CEO Oliver Zipse spoke of "extraordinary burdens in the third quarter" and announced an improvement by the end of the year. BMW is therefore not fundamentally in a deep crisis, as is the case with VW.

Over the next few weeks, vehicles that are still waiting for their brakes to be replaced will be sold, filling BMW's warehouses. Nevertheless, the news was not well received on the stock market. At times, BMW shares fell to their lowest level since March 2022. However, the shares of the other German car manufacturers also fell significantly.

Margin only just above zero
In the past quarter, the profit margin in the car business, which is important for the company, slumped to 2.3 percent, after it had still scratched the ten percent mark a year ago. For the year as a whole, the company expects a profit margin of six to seven percent, while BMW has set itself a long-term target of eight to ten percent. BMW cites the problems with the braking system as the main reason for the weak quarter.

In the worst case scenario, the brakes of 1.2 million cars already delivered would have to be replaced, said CFO Walter Mertl, for which provisions in the high three-digit million range have been made. Because the electronic braking system was mainly installed in higher-priced vehicles, the delivery bans imposed in some countries had a particularly strong impact on the figures.

Problem market China: one third less sold
This year, operating profit fell by almost two thirds to just under 1.7 billion euros in the third quarter, while turnover fell by 15.7 percent to 32.4 billion euros. The figures were therefore worse than analysts surveyed by BMW had expected.

However, the general weakness on the Chinese market, which is currently also causing problems for rivals such as Mercedes-Benz, Volkswagen and Porsche, also played a role. BMW sold almost a third fewer cars in the People's Republic in the summer quarter. BMW is now helping its dealers, said Mertl, for example by paying out bonuses early. The aim is to improve the profitability of the dealers.

The CFO attributed around half of the slump in sales to the braking problems and predicted an improvement in the fourth quarter. Nevertheless, the current development on the Chinese market is not in line with BMW's growth ambitions, said Zipse. He spoke of considerable price pressure in the lower market segments and especially among Chinese manufacturers. For its part, BMW is responding to this with price reductions. The Mini produced in China is currently affected by this.

China difficult for European car manufacturers
Porsche and Mercedes-Benz had recently announced their intention to save against the China slump. The German premium brands used to be leaders in their segment in China. However, the world's largest car market is rapidly switching to e-cars. The Germans are losing out to cheaper Chinese competitors. Added to this is the price slump on the Chinese real estate market, which is affecting wealthy Chinese - the traditional buyer group for premium German vehicles.

What happens after Trump's victory?
Jürgen Molnar, investment strategist at broker RoboMarkets, said that even though BMW primarily blames a weaker China business for its decline in profits, possible punitive tariffs in the USA following Donald Trump's election victory are also causing headaches. Zipse referred to the large BMW plant in Spartanburg, where SUVs in particular roll off the production line. "Especially when there are changes in geopolitics, it is right to be in the country, and we are."