Exciting background information

After Porsche: BMW profits also plummet

(Bild: APA/dpa/Lennart Preiss)

After Volkswagen and Mercedes, BMW has now also recorded a drastic slump in profits in the past 2024 financial year. At 7.7 billion euros after tax, the German group earned 37 percent less than in the previous year, the second sharp decline in a row. But it is worth taking a closer look.

First, the current background: in addition to weakening sales in China, the Bavarians also suffered from problems with brakes purchased from the supplier Continental. Turnover also suffered a significant setback. 142 billion euros is a drop of 8.4 percent. Nevertheless, BMW expects demand to increase in the current year. Despite the "challenging" situation and the tariff increases recently imposed by the USA, pre-tax earnings are expected to return to around the 2024 level. BMW is not providing a forecast for profit after tax.

BMW is not alone with its slump in profits. The two other major German car manufacturers, Volkswagen and Mercedes-Benz, have also reported similar falls. At VW, profits fell by 31 percent to 12.4 billion euros, at Mercedes by 28 percent to 10.4 billion euros. They too are complaining about the difficult environment in China, among other things.

Porsche also reported a sharp drop in profits of 30 percent this week. As a result, profits plummeted to 3.6 billion euros. The Stuttgart-based company is also complaining about the difficult environment in China, among other things.

So are the German car manufacturers deep in crisis? That depends on which angle you look at it from: Money or the future.

Still earning well for the time being - losses are relative
In order to correctly assess the question of the financial situation, it is worth taking a broader view. The current results should not just be compared with the last few years, says industry expert Frank Schwope, who teaches automotive economics at the Fachhochschule des Mittelstands in Cologne and Hanover.

"We are currently seeing a normalization after an exceptional situation with unprecedented profits. After the first coronavirus slump in 2020, there were hardly any discounts and a shift towards more expensive models in the following years - particularly due to the shortage of chips and vehicles," he explains. "This resulted in exorbitantly high margins for manufacturers such as VW, Mercedes and BMW, which are normally impossible to achieve."

This can also be seen in the BMW figures: The previous record profit of 18.6 billion euros dates back to 2022. In 2021 and 2023, it was more than 12 billion euros in each year. Compared to this, the current result looks paltry. But before these three special years changed the benchmark, the old record profit from 2017 was €8.7 billion. Even if inflation is taken into account, the current result of 7.7 billion no longer looks quite so bad in comparison.

Schwope agrees, although he is referring to all three major groups: "The current figures are not bad. They only look bad in comparison with the special years," he says. That's why he doesn't want to talk about a crisis. "Of course, it always depends on how you define a crisis, but I'm thinking more of times when VW, for example, slipped into the red." In any case, the current figures are no reason to complain.

Industry has concerns about the future
But that is no reason to sound the all-clear: the times are challenging and manufacturers are justifiably "worried about an impending crisis and would do well to adapt their structures in good time to weather the storm", says Schwope.

VW is already doing this: among other things, almost one in four jobs at the core VW Passenger Cars brand is to be cut in Germany by 2030. Mercedes also wants to cut costs by several billion euros in the coming years and has announced a redundancy program. And the list goes on: At Porsche, 1900 jobs are on the list to be cut at Ford in Germany 2,900. Suppliers are also cutting or downsizing: Bosch, Schaeffler, ZF, Continental, ThyssenKrupp - to name just a few.

These concerns are also reflected in the mood in the industry. And it is poor - especially if you also take suppliers into account. The business climate index for the automotive industry compiled by the Ifo Institute is currently almost 35 points in the red.

Nevertheless, BMW is able to escape this to some extent. The number of permanent employees has recently risen slightly.

Disrupted supply chains, growing uncertainties
The management consultancy AlixPartners also believes that the global automotive industry is particularly affected by disruption. The biggest problems are disrupted supply chains, rising material costs and growing uncertainties in international trade relations. The latter are threatened not least by US President Donald Trump's tariff plans.

Added to this are the relatively high costs for personnel and energy in the home country. And then there is China: on the one hand, the world's largest market, which had long ensured rapid growth and high profits, has become much more difficult. On the other hand, competition from there is becoming ever stronger - especially in the increasingly important field of electromobility.

The latter is also a problem area in its own right. Purely electric vehicles still only account for a relatively small proportion of the groups' sales, and working with combustion engines, hybrids and electric cars in parallel makes many things more complicated. And for most manufacturers, sales of electric cars are not making much progress. BMW is doing much better here than the other German manufacturers and was able to significantly increase its sales last year. However, the 427,000 e-vehicles sold are still not even a fifth of the company's total production.

Nevertheless, BMW describes them as the most important growth driver. The new class is expected to provide an additional boost. Its first series vehicle is scheduled to go into production at the end of 2025. BMW also spent a lot of money on this last year. The Group spent a total of 18 billion euros on research and development.