Electric cars are set to become increasingly important at BMW in the future.
(Photo: IMAGO/TT)
Munich After a record profit of 18.6 billion euros in the previous year, BMW is promising its shareholders a return on sales of eight to ten percent for 2023. This corresponds to a slight increase in the targeted margin corridor compared to previous years, in which the car manufacturer from Munich was only ever able to achieve single-digit profitability values in its core business.
Strictly speaking, the increase in the return target is just a return to normality at BMW. The group has always aimed for a margin of up to ten percent with its auto division. Nevertheless, analysts did not expect this step.
“This is surprising and slightly positive,” explains Daniel Röska, industry expert at asset manager Alliance Bernstein. Jürgen Pieper, car specialist at Bankhaus Metzler, also speaks of a “step forward”, even if it is not spectacularly large. There are two reasons that make the capital market experts optimistic about BMW.
First, BMW is the only foreign vehicle manufacturer to date to have acquired a majority stake in its manufacturing joint venture in China. More than a year ago, the Bavarians increased their stake in the joint venture with Brilliance from 50 to 75 percent. Since then, the China business has been fully consolidated in the BMW balance sheet. Although this increases sales and operating profit noticeably, it also leads to significantly higher costs.
Especially when purchasing material and logistics, there is an additional effort due to the lack of chips and disrupted supply chains. In addition, there are higher prices for energy and raw materials as well as one-off depreciation. In total, the full consolidation of the China business has recently burdened BMW’s margin in the car business by around two and a half percentage points.
Sales of electric cars should increase – BMW shares increase slightly
Also this year, the group expects a burden of 1.4 billion euros as a result of the consolidation. Bernstein expert Röska states that the fact that BMW is nevertheless aiming for a double-digit return on sales for 2023 is being rewarded on the capital market. BMW’s share price rose by more than one percent on Wednesday morning.
Second, BMW wants to significantly increase sales of pure electric cars this year. In the previous year, the Bavarians were able to deliver 215,000 battery vehicles – twice as many as in the previous year.
However, this corresponds to less than a tenth of the Group’s total sales volume. This year, the proportion of fully electric vehicles is expected to increase to 15 percent.
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According to its own statements, BMW is aiming for a “steep growth path” for electric cars overall. By 2024, one in five new cars in the group will be fully electric, by 2025 one in four and by 2026 one in three. The problem with this is that the contribution margins that vehicle manufacturers such as BMW achieve with battery models are far below those of makes with combustion engines.
Or to put it another way: The higher the proportion of electric vehicles in a classic car manufacturer, the worse their return on sales tends to be. Analysts find it remarkable that BMW is slightly increasing its profitability targets despite the increasing pressure on margins. “BMW has caught up with electromobility, set itself ambitious goals and overtaken many competitors,” says Metzler expert Pieper.
Mercedes plans with more returns than BMW
Compared to its eternal rival Mercedes-Benz, which announced an adjusted return on sales of up to 14 percent in the auto business this year, the Bavarians remain conservative when it comes to profit margins. Both groups want to grow in the luxury segment with their particularly profitable sedans and SUVs. BMW expects a jump in sales in the mid double-digit percentage range in the segment thanks to models such as the 7 Series, the X7 or the models from the British luxury sub-brand Rolls-Royce.
However, BMW expects only a slight increase in sales across its entire model portfolio this year. At BMW, this means an increase of between one and five percent compared to the previous year’s figure of 2.4 million vehicles. Selling prices for new cars are likely to remain stable. The top yields for used cars, on the other hand, seem to be coming to an end, the markets should “normalize” here, BMW predicts.
More: The combustion bet: BMW wants to continue investing in petrol and diesel