BMW Reports 37% Decline in Annual Net Profit, Cites Weakening Demand in China

Automaker Struggles with Subdued Chinese Market and Rising Trade Barriers as 2024 Profit Declines

BMW’s annual net profit for 2024 plummeted by nearly 37%, reflecting a sharp slowdown in the Chinese market and growing economic pressures. The car manufacturer reported a net profit of €7.68 billion ($8.32 billion), a 36.9% decrease from the previous year. This disappointing performance was in line with market expectations, as reflected by an LSEG forecast, and shares slid by 2% in early trading on Friday.

Subdued Chinese Demand Weighs on Profitability

The German automaker specifically pointed to weak demand in China, the world's largest car market, as a key factor behind its financial struggles. The ongoing economic slowdown and shifting consumer preferences in China have raised concerns for BMW and other luxury car manufacturers, which rely heavily on the Asian market. Despite strong sales in other regions, the fall in Chinese demand continues to challenge BMW's overall growth trajectory.

Forecast for 2025: Margin Pressure and Geopolitical Risks

Looking ahead, BMW has set earnings margin expectations for 2025 at around 5% to 7%, down from 6.3% in 2024. The company has warned that it will face headwinds from several sources, including tariffs, macroeconomic volatility, and geopolitical risks. This challenging outlook suggests that BMW will need to navigate a tough environment that includes ongoing trade disputes and supply chain disruptions.

The company’s tariff forecast considers the effects of tariffs imposed up to March 12, 2025, which include the U.S. steel and aluminum tariffs, and import levies affecting China, Canada, and Mexico. With the auto industry being a key target of U.S. tariffs, BMW forecasts that the impact of these trade barriers could lead to a one-percentage-point reduction in its auto earnings margin. This is particularly concerning given the growing uncertainties in global trade and the potential for further tariff hikes.

Impact of Tariffs on the Global Auto Market

BMW’s Chief Financial Officer emphasized that the tariffs, especially those imposed by the U.S., would add more complexity to the company’s efforts to maintain profitability. The automaker has pointed out that the competitive landscape remains challenging, compounded by trade uncertainties and the broader global economic environment.

Sales Decline and Delivery Delays

In terms of deliveries, BMW’s 2024 figures saw a slight decline to 2.45 million units, down from 2.55 million in 2023. While the drop was relatively small, the company attributed it to supply chain issues, including a faulty braking system provided by Continental, which led to significant delays and forced BMW to revise its initial sales outlook for the year. These disruptions underscore the vulnerability of the global automotive supply chain, which has been under stress due to component shortages and logistical bottlenecks.

CEO Criticizes Tariffs as a Long-Term Strategy

BMW’s CEO Oliver Zipse also shared his views on the current trade policies in a recent interview with CNBC’s “Squawk Box Europe.” He stated that while tariffs might have been an effective tool in the past, in today’s highly interconnected global markets, they may no longer be the most effective way to enhance competitiveness. Zipse argued that the evolving dynamics of international trade make tariffs an outdated approach, and he believes that free trade will emerge stronger in the coming years.

“There’s a strong case for free trade in the future, and I am almost certain that in the next 12 to 18 months, we will see a shift in attitude towards tariffs,” Zipse added.

Looking Forward: A Changing Trade Landscape

Despite the challenges of 2024, BMW remains hopeful that the global trade environment will eventually improve, especially as countries recognize the limitations of trade protectionism. As Zipse mentioned, free trade could offer a more sustainable path to growth for automakers like BMW, particularly in emerging markets where demand for luxury vehicles is expected to continue growing.

While the near-term outlook remains challenging, BMW is working to diversify its strategy by focusing on supply chain resilience, electric vehicle innovations, and maintaining strong ties with its key markets. As the company continues to adapt to changing economic conditions, it will be crucial for BMW to stay ahead of the curve by aligning its business strategies with the broader trends in global trade.

Conclusion: A Tough Road Ahead

In conclusion, BMW’s 2024 financial results reflect the increasing difficulties faced by automakers amid global trade disruptions and a sluggish Chinese market. With tariffs, supply chain challenges, and shifting geopolitical dynamics, the company is bracing for a difficult 2025. However, BMW remains committed to its long-term growth strategy, with a clear focus on adapting to the changing global trade landscape.

Despite these obstacles, BMW’s continued efforts to diversify its operations and expand its global presence will play a critical role in its ability to overcome the challenges posed by the current trade war. With a strong focus on innovation, sustainability, and market diversification, the company is poised to navigate these turbulent times and emerge stronger in the years to come.

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