BMW’s main measure of profitability fell to the lowest level in more than four years in the third quarter as a costly recall and weak demand in China weighed on earnings.
The company’s auto-making margin slumped to 2.3 percent, well below its 2024 target of at least 6 percent and the lowest since the second quarter of 2020, when the coronavirus pandemic was crushing commerce.
Operating profit was €1.7 billion ($1.82 billion) for the quarter, down 61 percent from the €4.4 billion in the same quarter last year. Revenue fell 16 percent to €32.4 billion.
BMW confirmed its adjusted full-year guidance. The company expects a significant decrease in group earnings and slightly lower vehicle deliveries than in the previous year, with an automaking margin between 6 percent to 7 percent.
In a statement BMW Chief Financial Officer Walter Mertl said that “with stringent management” BMW “remains on track” to hit its 2024 auto free cash flow target. “In the fourth quarter, sequentially higher deliveries and a stronger product mix will support our earnings,” he said.
BMW walked back its outlook for the year in September after a faulty braking system, supplied by Continental, forced it to recall as many as 1.5 million vehicles. The company has set aside a provision of almost €1 billion to fix the defects and had to temporarily halt deliveries of hundreds of thousands of higher-priced vehicles.
Lower sales volumes and higher inventory levels due to the recall resulted in negative free cash flow of €2.48 billion in the third quarter.
BMW aims to reduce inventory levels to the previous year’s level in the final three months of the year and confirmed its outlook of reaching annual free cash flow of more than €4 billion.
BMW sales plunge in China as BYD rises
The problems have added to an already difficult time, as faltering demand in China and Europe hit sales and crushed margins further.
In China, BMW’s biggest market, its vehicle sales plummeted 30 percent in the three months through September as consumers cut back on luxury spending and local carmakers offered less expensive alternatives.
BMW and Mercedes-Benz have fallen behind BYD, which has put a range of full-electric and plug-in hybrid vehicles on the market.
BMW’s vehicle sales declined in every region in the third quarter, though it did have some success with EVs. Deliveries of battery-powered BMWs, such as the i4 sedan and iX1 SUV, rose 10 percent from a year earlier. At Mercedes, wholesale deliveries of passenger EVs plunged 31 percent in the period.
Reuters contributed to this report
Source: Automotive News, November 6, 2024