BMW Profits Still Look Strong Despite Forecast Cut; Electric Plans Questioned.
“BMW’s technology-open powertrain strategy remains a drag, and implies a higher risk of sunk cost medium-term”.
BMW’s profit outlook is still strong despite cutting its target for 2022 but is seen as lagging behind its German opposition not to mention Tesla, while its electric car policy is still criticized for lacking commitment.
“BMW has lingered too long on gimmicks such as fuel cells and plug-in hybrids and has therefore not focused enough on the topic of fully electric vehicles. It will take a good 5 years for BMW to reach the almost 1 million fully electric cars like Tesla last year and by then Tesla will have sold more worldwide than the BMW group as a whole,” said Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) in Duisberg, Germany.
BMW cut its auto division profit margin forecast at its annual financial meeting for analysts to between 7 and 9%, which included its estimate of the impact of the Russia/Ukraine invasion crisis. The previous estimate was between 8 and 10%. For 2021, the margin was 10.3%, lower than its main local competitors Mercedes and Audi.
BMW increased net profit to an all-time high of €12.5 billion ($13.8 billion) in 2021, as it turned a problem – the chip shortage – into an advantage by selling more higher-margin vehicles.
Battery electric vehicle sales will double to more than 200,000. This will be boosted by additions to the range this year including the i7 version of the 7 series flagship sedan and the iXi, a version of the X1 SUV. An all-electric 5 series is scheduled for 2023. Last year BMW unveiled the sporty i4 sedan and the big iX SUV.
Dudenhoeffer said BMW’s operating profit margin performance last year was weaker than Audis – at 10.3% versus 10.5% – but this looks worse when you consider BMW sold almost 50% more vehicles than Audi so should have been able to leverage this advantage.
“The gap to Mercedes was even greater, with its 12.4% EBIT (earnings before interest and tax) while Tesla’s margin per vehicle was 12.1% and that was achieved with 100% electric cars,” Dudenhoeffer said.
Flat sales growth
Investment bank UBS cut its BMW earnings per share estimate for 2022 by 12% and by 3.5% for 2023. BMW’s prediction that sales growth would be flat in 2022 “looks reasonably conservative”.
“Also, because we expect potential global auto demand destruction to be the lowest in the premium/luxury segment. With our auto EBIT forecast of 8.3% in 2022 and 9.5% in 2023, we’re in the upper half of BMW’s guidance range,” UBS said in a report.
UBS also criticized BMW’s electric car strategy, which seeks to use internal combustion engine (ICE) engineering to double up as electric, rather than developing specialized electric vehicles.
“BMW’s technology-open powertrain strategy remains a drag, and implies a higher risk of sunk cost medium-term, in our view. Also despite mastering the chip crisis better than others, BMW lost its profitability lead in the premium segment to its German peers and Tesla and we believe is unlikely to reclaim it in the foreseeable future,” the report said.
Investment adviser Jefferies reckoned the lower profit range forecast would disappoint investors. But it did concede it was the first auto manufacturer to include an estimate of the damage from Russia/Ukraine.
BMW, unlike Mercedes and Audi, has been less committed to creating an all-electric fleet because it reckons there will still be plenty of sales to be made around the world of ICE vehicles by 2030, when many European all-electric targets kick in. It also sees an important role for fuel-cell power and at the meeting CEO Oliver Zipse had this to say –
“We see hydrogen-electric drivetrains as a complement to battery-electric drivetrains.”
Zipse said BMW should sell 50% battery electric vehicles by 2030 or about 1.5 million.
In the past Zipse has defended the so-called technology-open strategy and declared the company was ready for an electric future but not about to close the door on ICE including green fuels, and fuel cells. This stance has cost BMW some mileage on the stock market, with analysts saying its direct peers have all adopted BEV-only long-term strategies.
But according to CAR’s Dudenhoeffer, electric is the only way to go, everything else is a diversion.
“The all-electric car is the car of the future. Nothing shows this better than the comparison with Tesla, where 12.3% EBIT margin per vehicle is already achieved. In addition, there is the very traditional BMW sales network, which works in Germany with high discounts and thus significant costs compared to the other German premium manufacturers. Innovative concepts, such as car subscriptions, are not available from BMW itself, but only occasionally from dealers. So BMW also has disadvantages compared with its competitors in terms of its sales structure, which also partly explains its moderate results compared with its competitors,” Dudenhoeffer said.