BMW Faces Profit Decline: Will the 'New Class' Drive a Turnaround?

While Bayerische Motoren Werke AG (BIT:BMW) presented its latest disappointing quarterly figures, the sun was shining in Munich – in contrast to cloudy Wolfsburg. A fitting image: BMW is not Volkswagen AG (LON:0P6N). Although some problems are similar, the challenges facing the two companies differ in many ways.
 
First, the parallels: BMW's third-quarter profit fell by 84 per cent to 476 million euros. The profit margin before interest and taxes fell to 2.3 per cent, well below the target of 6 per cent. The last time there was such a low margin was during the pandemic crisis year. In other words, BMW narrowly avoided making a loss. Sales also fell by 16 per cent to 32.4 billion euros.
 
With these figures, BMW is joining the series of negative reports from the automotive industry: slumps in profits, job cuts and plant closures. One reason for this is the same for BMW as for other manufacturers – the weak development in China. The market there, the largest for BMW, is suffering from deflation Falling prices and consumer restraint are hitting premium manufacturers particularly hard.
 
A few weeks ago, the Chinese government approved an economic stimulus package that briefly caused stock markets to rise. However, it remains to be seen how sustainable the effect of these measures will be. Analysts and China experts suspect that it could take months before German carmakers benefit. At the same time, BMW – like most German car brands – is losing market share to its largest Chinese competitor, BYD, which dominates the affordable electric car segment. In Europe, CO₂ targets and other regulations are weighing on business, while in Germany, the rise in energy costs is also being felt.
 
According to the company, however, the main reason for BMW's current weakness is a different one: supplier Continental delivered faulty brakes, which delayed the delivery of hundreds of thousands of vehicles. According to BMW, this burden will already be overcome in the coming quarter. However, it remains unclear how significant this influence actually was, because the company does not provide any exact figures and thus avoids questioning its own strategy.
 
Nevertheless, BMW could be better positioned for the future than VW. Next (LON:NXT) year, the ‘New Class’ is to be introduced – a series of models that will be manufactured primarily in Debrecen, Hungary, and that should position BMW more strongly in the electric vehicle market. At the same time, BMW is focusing on flexibility and allowing the production of combustion and hybrid models to continue. In parallel, the group is working on hydrogen propulsion with fuel cells. This openness to different technologies could pay off in the US, where the political situation is always good for a surprise. Companies that don't put all their eggs in one basket could have an advantage here.
 
In this context, it is particularly worth keeping an eye on the US, where the year-end rally is in full swing, having received a significant boost from the US election. This is one to watch.
 
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