BMW is a historically conservative company. It’s never been able to rely on scale to survive. Instead it’s placed its corporate faith in great engineering and design to drive sales. 2020 appears to be no different as it looks at a slow recovery ahead.
Despite the $262M loss in the second quarter, BMW is still up for the year with a profit before tax of $593M. Nevertheless BMW, MINI and Rolls Royce are reducing investories and scrutinizing new projects as they prepare for the slow recovery from the global pandemic. What this means for the BMW brand specifically remains to be seen.
At the halfway stage, the BMW Group remains on course towards achieving its targets for the full year. After implementing controlled cutbacks at many of its plants in March as a response to the foreseeable drop in global demand, the Group initiated a coordinated restart of its production facilities in the second quarter. Since mid-June, all its manufacturing plants have again been working in regular shifts. Nonetheless, cost efficiency and cash management remain decisive factors for best controlling the consequences of the corona pandemic.
“Our swift responsiveness and consistent management strategy enabled us to limit the impact of the corona pandemic on the BMW Group during the first half of the year,” said Oliver Zipse, Chairman of the Board of Management of BMW AG, in Munich on Wednesday. Despite a significant market decline following the corona pandemic the BMW Group was able to achieve a positive profit before tax of € 498 million in the first half year. “We are now looking ahead to the second six-month period with cautious optimism and continue to target an EBIT margin between 0 and 3% for the Automotive segment in 2020. We are monitoring the situation very closely and managing production capacities in line with market developments and regional fluctuations in customer demand.”
The BMW Group remains committed to its plans; despite the highly challenging market environment, it will continue to invest in future-oriented technology fields and develop its expertise accordingly. As previously announced, the Group intends to invest more than € 30 billion in research and development up to 2025 with the aim of extending its leading edge in terms of innovation.
Liquidity position remains strong – future-oriented investments at high level
In order to accomplish the targets referred to above, the BMW Group continues to make the necessary upfront investment in future-oriented technologies. Group research and development expenses totalling € 2,734 million remained at a high level in the first half of the current financial year (2019: € 2,796 million; ‑2.2%). The figure includes expenses for the ongoing electrification process and, in particular, for developing the BMW iNEXT. As previously reported, capital expenditure on property, plant and equipment as well as on other intangible assets is being undertaken on a prioritised, highly focused basis. The total expense for the first half of the year amounted to € 1,477 million (2019: € 2,175 million; -32.1%).
“We are investing carefully and with a sense of proportion. In light of the current situation, we are either postponing or closely scrutinising our projects. As announced, we have also systematically reduced inventory levels during the second quarter with the aim of safeguarding free cash flow,” stated Nicolas Peter, Member of the Board of Management of BMW AG, Finance. “Our Performance Programme is making a significant earnings contribution. Over the past three years or so, this programme has laid the groundwork for key improvements, which we are now benefiting from and which enable us to drive forward the necessary changes.”
CO2 reduction to be achieved through millions of electrified vehicles
The Group’s second strategic focus is on sustainability. During the corona pandemic, the Board of Management has set some ambitious long-term targets. “Sustainability and digitisation are the key issues of the coming decade. Particularly in these challenging times we need to set the right course in this respect,” said Zipse. “We not only combine product excellence with state-of-the-art digital technologies – we also design them to promote our sustainability goals. Our customers as well as society in general will benefit from this strategy.”
For the first time across the entire life cycle of its products – from the supply chain to production and through to a vehicle’s end-of-life phase, the BMW Group has set itself clear targets for reducing its CO2 emissions up to the year 2030. Over this entire period, CO2 emissions per vehicle are to be reduced significantly by at least one third by 2030 compared with 2019 levels.
For instance, the CO2 emissions our vehicles generate during their lifetime are to be reduced by 40 per cent per kilometre driven. The key lever for achieving this target is a far-reaching product strategy that massively promotes the use of e-mobility. In ten years, the goal is to have a total of over seven million electrified BMW Group vehicles on the roads – some two thirds of which will be all-electric models.
The BMW Group is already a leading maker of electrified vehicles. By the end of 2021, it will be offering five all-electric, series-produced automobiles in the form of the BMW i3*, the MINI Cooper SE*, the BMW iX3*, the BMW iNEXT and the BMW i4. The next generation of the BMW 7 Series will mark a further important milestone. The flagship model of the BMW brand will be available with four different types of drivetrain, i.e. highly efficient diesel- and petrol-driven versions, an electrified plug-in hybrid and, for the first time, an all-electric BEV model. By 2023, the BMW Group intends to have 25 electrified models on the road – half of them all-electric versions.
Additional all-electric models in the pipeline
In addition to the BMW 7 Series, comprehensive electrification will continue to be rolled out across the Group’s model range. Further examples of the “Power of Choice” will be the highly popular BMW X1 and BMW 5 Series, which will also be available with all four drivetrain variants going forward – all-electric, plug-in hybrid, diesel and petrol.
“The best vehicles in the world are sustainable. Premium quality and sustainability will be increasingly linked going forward,” said Zipse. “We are leveraging our outstanding technological expertise in both hardware and software to make our vehicles desirable and at the same time help to minimise CO2 emissions.”
The BMW Group continues to work on significantly reducing the CO2 emissions generated by its current fleet of new vehicles and is again this year set to meet the stipulated CO2 fleet target for new vehicles registered in Europe in 2020. The figure is around 20% below the requirement stipulated for 2019. Systematic electrification of the model range is making a decisive contribution towards achieving this target.
Group revenues down in first half of year
As expected, the negative impact of the corona pandemic was felt more sharply in the period from April to June. During the first half of the current financial year, the BMW Group delivered 962,575 (-23.0%) BMW, MINI and Rolls-Royce premium brand vehicles to customers worldwide. Group revenues fell accordingly to € 43,225 million (2019: € 48,177 million; ‑10.3%). Profit before financial result (EBIT) for the six-month period amounted to € 709 million (2019: € 2,790 million; -74.6%). Profit before tax (EBT) fell to € 498 million (2019: € 2,815 million; -82.3%), resulting in an EBT margin of 1.2% (2019: 5.8%). Group net profit amounted to € 362 million (2019: € 2,068 million; ‑82.5%).
In total, 485,464 vehicles were delivered to customers during the second quarter (-25.3%). Group revenues decreased to € 19,973 million (2019: € 25,715 million; -22.3%). Overall, the Group recorded negative EBIT of € 666 million for the three-month period (2019: positive EBIT of € 2,201 million). A strong performance by the BMW Brilliance Automotive Ltd. joint venture in China contributed to the improved financial result. The loss before tax for the second quarter amounted to € 300 million (2019: profit before tax of € 2,053 million). As a result, the Group’s EBT margin for the three-month period fell to negative 1.5% (2019: positive 8.0%). The loss after tax amounted to € 212 million (2019: profit after tax € 1,480 million).
Sharp market downturns affect Automotive segment performance
Automotive segment revenues between January and June totalled € 32,867 million (2019: € 41,837 million; -21.4%). Favourable product mix effects and better selling prices on the back of a rejuvenated product portfolio partially offset the effect of lower volumes. Segment EBIT for the six-month period deteriorated to a loss of € 1,325 million (2019: profit of € 1,159 million), giving an EBIT margin of negative 4.0% (2019: positive 2.8%).
Second-quarter revenues dropped to € 14,878 million (2019: € 22,624 million; -34.2%). Segment EBIT for the quarter deteriorated to a loss of € 1,554 million (2019: profit of € 1,469 million), with the EBIT margin falling to negative 10.4% (2019: positive 6.5%).
During the first six months of the year, the BMW brand sold 842,153 units (‑21.7%), the MINI brand 118,862 units (-31.1%) and Rolls-Royce Motor Cars 1,560 units (-37.6%).
Despite the overall sales volume decline, the number of electrified BMW and MINI vehicles delivered to customers rose to 61,652 units (+3.4%) in the six-month period. The ongoing expansion of the model range is expected to result in further growth in this area in the second half of the year.
In Europe, 372,754 BMW, MINI and Rolls-Royce brand vehicles were delivered to customers during the six-month period (-32.3%). Sales volume recorded in Germany fell to 116,362 units (-27.9%). In China, a more positive trend became evident from April onwards. Thanks to second-quarter volume growth compared to the previous year, six-month sales only decreased by 6.0% to 329,447 units. A total of 121,318 units (-29.5%) were sold in the USA in the first half of the year.
Motorcycles segment reports profit for six-month period
BMW Motorrad delivered 76,707 motorcycles and maxi-scooters to customers during the first half of the year (-17.7%), generating revenues totalling € 1,079 million (2019: € 1,313 million; -17.8%). Segment EBIT amounted to € 65 million (2019: € 191 million; -66.0%), giving a segment EBIT margin of 6.0% (2019: 14.5%).
Deliveries to customers in the second quarter totalled 41,933 units (-23.2%), with revenues of € 522 million (2019: € 727 million; -28.2%). EBIT deteriorated to a loss of € 7 million (2019: profit of € 102 million) and the EBIT margin to negative 1.3% (2019: positive 14.0%).
Financial Services segment maintains revenues at high level
At 30 June 2020, the retail customer contract portfolio under management within the Financial Services segment stood at 5,502,786 contracts (31 December 2019: 5,486,319 contracts; +0.3%). During the first half of the year, 804,452 (2019: 971,287 contracts: -17.2%) new credit financing and lease contracts were signed with retail customers. Six-month revenues fell slightly year-on-year to € 14,256 million (2019: € 14,510 million; -1.8%). Profit before tax amounted to € 581 million (2019: € 1,200 million; -51.6%).
The number of new contracts signed in the second quarter dropped to 354,765 contracts (2019: 501,663 contracts; -29.3%). Revenues for this period totalled € 6,658 million (2019: € 7,364 million; -9.6%). Profit before tax amounted to € 97 million (2019: € 573 million; -83.1%).
Outlook for 2020 reaffirmed
The BMW Group sets itself ambitious targets, even in politically and economically turbulent times. Currently, however, the uncertainty caused by the global spread of coronavirus makes it difficult to make an accurate forecast of the BMW Group’s business performance for the full financial year 2020. For the twelve-month period as a whole, the BMW Group continues to assume that demand in all key markets will be significantly reduced in light of the coronavirus pandemic and the necessary containment measures.
As a consequence, worldwide deliveries for the Automotive segment in 2020 are likely to be significantly lower than one year earlier. Under the prevailing circumstances, the BMW Group expects the segment EBIT margin to lie within a range between 0 and 3% in 2020.
Mainly due to the negative economic outlook, the Financial Services segment is expected to generate a lower volume of new business amidst a potentially more volatile risk environment. Accordingly, a moderate year-on-year drop in return on equity is forecast for the segment.
Motorcycles segment deliveries are expected to decrease significantly compared to the previous year. The EBIT margin is currently forecast to lie within a range between 3 and 5%.
Taking account of the various factors described above, Group profit before tax is expected to be significantly lower than in 2019.
The workforce size will be slightly below the level recorded one year earlier. The personnel-related measures previously communicated will be used to manage the workforce size. Under the current circumstances, all new recruitment is subject to stringent critical review.
As previously reported, the outlook does not take account of the following factors: a prolonged, deep recession in key sales markets; an even more pronounced cyclical downturn in the Chinese economy caused by recessions in other economic regions; major supply disruptions in the wake of even greater competition; the potential impact of a second wave of infection and the associated containment measures. The BMW Group is monitoring developments closely and remains well prepared to act swiftly and efficiently.