BMW shares knocked by profit slump and tariff threat

BMW AG reported weak third-quarter earnings on Wednesday, impacted by soft sales in China and issues with its braking system, which led to a costly recall, sending shares lower.

BMW shares knocked by profit slump and tariff threat

The stock dropped 5.3% to €68.76 in Frankfurt, with other European automakers also facing declines, partly due to concerns over a likely U.S. presidential election victory by Donald Trump, who has threatened broad tariffs on imports in the automotive sector. Mercedes-Benz Group AG fell 3.7% to €53.83, while Volkswagen AG dropped 3.5% to €87.35. The Munich-based automaker saw earnings before interest and tax (EBIT) plunge 61% to €1.70 billion in the third quarter, down from €4.35 billion the year before. Net profit dropped 84% to €476 million from €2.93 billion, and pretax profit sank 79% to €838 million from €4.06 billion. The pretax margin also fell to 2.6%, compared with 10.6% in the same period last year. Revenue declined by 16%, to €32.41 billion from €38.46 billion. BMW cited “extraordinary challenges” in the third quarter, including weak demand in China and problems with its braking system that led to a recall of 1.5 million vehicles.

Tariff threat hit the company

The company, like many other German automakers, has become heavily reliant on China, where it generates around a third of its sales. However, with China facing prolonged economic difficulties and rising competition from local electric vehicle makers, BMW has struggled. Pretax profit in the Automobile division plummeted 86% to just €433 million, down from €3.04 billion. Vehicle sales fell, and the product mix was negatively impacted, mainly due to weaker demand in China and stoppages in deliveries of high-end models due to the braking system issue. However, CEO Oliver Zipse remained optimistic about the fourth quarter. “We are back on track for stronger earnings in the fourth quarter to meet our annual targets, despite planned high upfront expenditures,” he said. “We are balancing short-term earnings with long-term success,” Zipse added. CFO Walter Mertl also expressed confidence, stating that higher deliveries and a stronger product mix in the fourth quarter would support earnings. “Despite the pressures in Q3, we are continuing with our planned extensive investments, which are crucial for our future automotive portfolio and profit generation in the coming years,” Mertl said. For 2024, BMW confirmed its adjusted full-year guidance, which was revised in September. The company expects a "significant" decrease in earnings before taxes, with vehicle deliveries in the Automotive segment slightly lower than the previous year. The EBIT margin is forecast to fall within the range of 6% to 7%, and return on capital employed is expected to be between 11% and 13%. In 2023, BMW reported a pretax profit of €17.10 billion and an EBIT margin of 9.8%.