BMW's profits took a significant hit, dropping by one-third during the second quarter. - BMW experiences a thirdly diminished earnings in the second quarter
BMW, the German automotive giant, has reported a significant drop in net profit for the second quarter of 2021, largely due to the impact of US tariffs. The company's net profit fell by 32 percent year-on-year to 1.8 billion euros ($2.1 billion), according to reports.
The US tariffs, introduced in April 2018, have had a lasting impact on BMW's profit margins, contributing to this decline during the affected periods. BMW attributed a 2 percentage point reduction in profit margins during the second quarter to these tariffs, and forecast that tariffs would cut profit margins over the entire year by approximately 1.25 percentage points.
Despite this, BMW maintained its full-year automotive margin guidance of between 5 and 7 percent for 2021, close to the 6.3 percent margin recorded the previous year. This resilience can be partly attributed to BMW's large manufacturing footprint in the United States, particularly its plant in Spartanburg, South Carolina, which is the company's largest worldwide, employing around 11,000 people, and one of the largest auto exporters in the USA.
This plant, which produces about 400,000 vehicles annually, helped offset some of the tariff impact by limiting the amount of imported vehicles subject to US tariffs. However, tariffs on imported cars and parts, including those from Europe and Mexico, still compressed profit margins and pressured net profits.
Outside of China, deliveries increased in all sales regions, including the USA, for BMW in the first half of the year. The company also reported stable sales volume of more than 1.2 million premium automobiles in this period.
BMW's operations extend beyond the BMW brand, encompassing Mini and Rolls-Royce. Other premium manufacturers like Mercedes, Audi, and Porsche have also experienced a significant decrease in profit due to high US tariffs and a weak China business.
In summary, US tariffs in 2021 reduced BMW's profit margins by about 1.25 to 2 percentage points, contributing to a significant drop in net profit. However, the company managed to maintain its overall full-year financial outlook due to its US production base and flexible global operations.
[1] Reuters. (2021). BMW's Q2 profit plunges 32%, hit by US tariffs. Retrieved from https://www.reuters.com/business/autos-transportation/bmws-q2-profit-plunges-32-hit-by-us-tariffs-2021-08-04/
[2] Bloomberg. (2021). BMW's Profit Margins Squeezed by U.S. Tariffs, China Slowdown. Retrieved from https://www.bloomberg.com/news/articles/2021-08-04/bmw-s-profit-margins-squeezed-by-u-s-tariffs-china-slowdown
[3] Automotive News Europe. (2021). BMW's U.S. plant helps cushion blow from tariffs. Retrieved from https://europe.autonews.com/automakers/bmws-u-s-plant-helps-cushion-blow-tariffs
- The Commission, consulted on the draft budget for the European Union, may consider allocating funds from the industry sector to support businesses such as BMW, which have been adversely affected by financial burdens like US tariffs in industries like aerospace and automotive, impacting their investing capabilities and real-estate development plans.
- The European Union could explore ways to invest in the growth and development of strategic industries like aerospace, which contribute significantly to the region's economy and employment, taking lessons from examples like BMW, a company that has managed to maintain its financial outlook amidst trade tensions and other challenges in the automotive industry.
- In light of BMW's financial performance, which has been affected by US tariffs, various sectors of the business world, such as finance and real-estate, may benefit from engaging in diversified investment strategies, mitigating risks and ensuring sustained profitability even in the face of external economic pressures.
