The automaker is suffering the worst quarter in the company’s history due to the corona – but is still doing better than competitors like Daimler or VW.
Worst quarter ever
For BMW boss Oliver Zipse the matter was already clear a month ago: “The second quarter of this year is the worst quarter that BMW has ever experienced”, stated the 56-year-old at the beginning of July and warned of a “decent loss”. Now the extent of the misery at the car manufacturer becomes clear. The Dax group disclosed its balance sheet on Wednesday morning.
Accordingly, between April and June, BMW made an operating loss of 666 million euros. For comparison: in the previous year, Bayern earned more than 2.2 billion euros in the second quarter before interest and taxes (EBIT). The bottom line is that BMW is now in the red as a result of the corona shock. The result (before minority interests) slumped from 1.5 billion euros to minus 212 million euros.
It is the first corporate loss in eleven years. Most recently, the result at BMW was negative after the financial crisis in 2009. Then followed 44 quarters in the plus. Now the upheavals associated with the virus are particularly evident in BMW’s auto division: Here, sales in the second quarter dropped by more than a third to 14.9 billion euros, and the operating loss adds up to more than 1.5 Billion euro.
Despite the devastating results between April and June, BMW remains in the black in the half-year. The group profit after six months is 362 million euros. Although sales fell significantly by almost a quarter, BMW was nevertheless able to contain the decline in sales to just over ten percent. The proceeds remained at over 43 billion euros.
“Thanks to our high level of responsiveness and consistent management, we were able to limit the effects of the corona pandemic on the BMW Group in the first half of the year,” said BMW boss Zipse. The manager also confirmed the forecast for 2020.
Significantly lower personnel costs
“We are looking ahead to the second half of the year with cautious optimism and will continue to aim for an EBIT margin in the automotive segment of between zero and three percent for 2020,” said Zipse. His board of directors is closely monitoring the situation and controlling production depending on developments in the individual regions. After the lockdown in March, all BMW car plants have been producing in regular shifts since mid-June.
With the small profit in the first half of the year, BMW is doing much better than many competitors. While at Daimler, for example, the operating return on sales fell to minus 1.6 percent in the first half of the year and at Volkswagen to minus 1.5 percent, BMW can show a positive EBIT margin of 1.6 percent after six months.
Bavarians benefit from the pandemic, among other things, from their significantly lower personnel costs compared to their competitors. BMW spends around twelve percent of its sales on wages, salaries, pensions and social security contributions every year.
At the arch-rival Daimler, however, the proportion of personnel expenses in relation to sales is more than one percentage point higher, at Volkswagen it is even five percentage points higher. “BMW’s stricter cost management pays off in the crisis,” says Ferdinand Dudenhöffer, Head of the Center Automotive Research (CAR).
Nevertheless, the pressure to adapt is also extremely high in Munich. In order to remain competitive, BMW is cutting its investments in property, plant and equipment by a third to less than four billion euros this year. In addition, the group wants to cut 6,000 jobs through severance payments and fluctuation. By the end of next year, the workforce is expected to drop to 120,000.
When it comes to spending on research and development, BMW only wants to slow down with caution, if at all. In the second quarter, development expenses even increased slightly – to 1.5 billion euros. “We invest purposefully and with a sense of proportion. Given the current situation, we are postponing projects or putting them to the test, ”said BMW CFO Nicolas Peter.
BMW wants to increase its portfolio of electric cars and plug-in hybrids to 25 models by 2022. For example, the group has high hopes for the iX3, the brand’s first electric SUV with an electric range of more than 460 kilometers according to the WLTP cycle. “We are making excellent progress with electrification,” explained Zipse. In fact, BMW sold 61,600 electric vehicles and hybrids in the first half of the year. This corresponds to an increase of 3.5 percent. The result: Unlike rivals like Daimler, BMW will “over-meet” the EU’s CO2 targets this year, Zipse said.
However, BMW does relatively poorly in terms of free cash flow in the first half of the year. After six months, the group did not actually earn any money in its auto segment, but burned 2.5 billion euros. The significantly larger Daimler group, however, shows a minus of 1.6 billion euros in free cash flow in the industrial business. In the second quarter, the value for the Stuttgart company was even clearly in the plus with almost 700 million euros, whereas it remained negative for BMW.
China business is picking up again
BMW CFO Peter now praises improvement. “For the third and fourth quarters, we expect positive values and further, continuous improvement,” promised the manager. This is an important message for shareholders. After all, the funds from the free cash flow show how much money is left at BMW in the end, in order to be able to distribute a dividend to investors without having to access reserves.
BMW is particularly optimistic about the increasing business in China. Sales of the Munich-based company in the Far East even increased by 17 percent in the second quarter – to 213,000 vehicles. “Amazing” is what NordLB analyst Frank Schwope calls it. In the first half of the year, sales in China are still down by six percent, but the capital market expert expects BMW to show a plus at the end of the year. “BMW may even be able to post growth in the Middle Kingdom for the year as a whole,” says Schwope.
In Europe and the USA, the other two major automobile markets, BMW sales, however, are still falling significantly. Specifically, sales in the EU fell by around a third and in America by more than 30 percent. The result: BMW is experiencing a strong shift in sales by region from the west to China. While BMW still sold 28.5 percent of its cars in the Far East in 2019, the proportion rose to 34 percent in the first half of the year.
BMW does not see China as being too dominant. In the course of the year, sales will be more evenly distributed across the major regions. “Now it depends on how robust the upward trend is and when the individual markets will catch up,” said BMW boss Zipse. The business development in July marked a “clear ray of hope” for him, here car sales were already “well above the previous year”.
At the same time, Zipse warned of too much euphoria: “There remains a great deal of uncertainty.” Nobody knows how the situation will develop in view of the corona pandemic. The group has not taken into account a second wave of infections with any necessary breaks in production in its outlook.