BMW is a well-known manufacturer of mid-premium and premium combustion cars. For the past few years, the company has been undergoing significant changes, entering the fast-growing electric car market. Unfortunately, through broken supply chains, the war in Ukraine and the recession, it is currently going through a difficult period.
Like its competitors, the company continues to suffer from an irregular and limited supply of semiconductors. This problem began as early as 2020 but is still not fully resolved by inelastic supply. Problems are caused by each newly developed model, requiring more computing power and more sensors. This also includes internal combustion cars. As a result, production is slowed and stretched over time, exposing the company to additional costs.
This problem could be mitigated by the cyclically declining demand for autos, which occurs during the recession. This is especially true for luxury cars, which tend to be purchased in times of prosperity. Today this rule was confirmed in the words of BMW CEO Oliver Zipse - "in terms of new orders, we are seeing a decline compared to last year" Russian energy blackmail is also not insignificant to the company's situation. BMW expects rising energy costs and an interruption of the power supply.
Despite the numerous troubles, the company announced better-than-expected results. However, the surprise wasn't big enough to save the stock from a 5% drop at the market open.
Revenues totaled $35.46 billion, beating analysts' expectations of $34.85 billion. The company delivered 563,000 cars in the second quarter, of which 230,000 and 214,000, were delivered to Asia and Europe respectively. Compared to the same period a year ago, sales fell 19.8% year on year. BMW said it expects sales to increase in the second half of 2020, but they are still expected to be well below last year's record of 2.52 million vehicles delivered.
Net profits fell as much as 31 percent in the second quarter, to just 3.46 billion euros. Beating the 3.13 billion forecast didn't save the company's shares from plummeting and it seems that the market itself was hoping for a softer landing. However, the high costs caused by the difficult macroeconomic environment were unavoidable.
In addition, the consolidation of BMW's Chinese joint venture Brilliance Automotive, despite increasing revenues in the first half of the year, reduced profits in the second quarter as the cost of a venture has risen. As a result, the automotive margin was 8.2 percent, down 15.8 percent from last year.
Rafał Tworkowski, Junior Market Analyst, Conotoxia Ltd. (Conotoxia investment service)
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