BMW Muscles Through Chip Shortage With Profit Jump
BMW AG earnings jumped to beat expectations after higher vehicle prices and prioritizing money-spinning models like the $75,000 X7 SUV helped the company offset output reductions due to the dearth of chips.
Group earnings before tax surged 50% to 2.9 billion euros ($3.4 billion) in the third quarter, BMW said Wednesday, compared with an average analysts’ estimate of 2.5 billion euros. The chip supply woes that have hampered the entire industry will remain an issue beyond this year, it said.
“Business during the current financial year to date has benefited substantially from the favorable stable market situation and continued brisk demand,” Chief Financial Officer Nicolas Peter said in the statement.
BMW has navigated turmoil from the chip shortage better than others, and in late September went against the tide of warnings to raise profit expectations. While carmakers have been able to offset much of the crisis with higher prices and swinging output toward their most lucrative models, suppliers like Continental AG have been less fortunate.
What Bloomberg Intelligence Says:
Better-than-expected 3Q results -- with a high-quality 7.8% auto-Ebit margin -- puts BMW on track to return to an 8-10% range (before one-time items), which we believe is achievable in 4Q and 2022. That target was last reached over 2010-17 and would be a bold statement for next year amid the transition to full electric vehicles. BMW has managed chip issues better than peers, and may lose 100,000 units -- 5% of production -- in 2021, helping to boost prices of its new (U.S. and China) and used vehicles.
-- Michael Dean, BI automotive analyst
Link to research.
The shares rose 1.3% at 11:37 a.m. in Frankfurt trading, and have gained 24% since the start of the year.
BMW’s deliveries during the third quarter sagged about 12% to just under 600,000 cars compared with a year ago. Mercedes-Benz sales plunged 30% during the same period. BMW’s shipments of plug-in hybrid and fully-electric cars doubled to 231,575 cars in the first nine months, with purely battery-powered models accounting for 59,688 vehicles.
After semiconductor availability grew yet worse during the third quarter, manufacturers are seeing light at the end of the tunnel. Last week, Volkswagen AG and Stellantis NV, the two biggest carmakers in Europe, said the crunch should finally start to ease.
As traditional manufacturers’ rollouts for electric vehicles gather pace, they’re struggling to dent Tesla Inc.’s rise. The EV leader’s valuation rose above $1 trillion for the first time last week, swept higher by a deal to supply 100,000 cars to rental company Hertz Global Holdings Inc. Tesla’s Model 3 also took the top spot for European car deliveries during September, the first electric car to do so.
BMW expects earnings before interest and taxes on automaking of between 9.5% and 10.5% on sales. Profit from the company’s financial services arm also jumped on higher prices and growth in new credit and leasing contracts. Divisional EBIT more than doubled to 974 million euros to make up 34% of group profit, up from 23% a year ago, BMW said.
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