The third quarter for BMW showed this German luxury brand finishing with profits that fell well short of what they expected.
There were many different contributing factors that have made it so that the brand is in a bit of a strange place where they need to bounce back in the next quarter. Some of the results were unexpected and couldn’t have been anticipated when the brand started the year and looked to reach specific numbers. Let’s take a look at what BMW experienced and what we can expect for the fourth quarter.
The Tariff Effect
Even though BMW is a German brand, it’s also a global brand. There are plants around the world and sometimes the governments and politics of different countries make it difficult to know what’s going to happen. With recent tariff troubles between China and the US along with a price war that’s taken place in Europe, the margins of the BMW models have eroded. Add to this the increased spending to boost the production of the new X5, X7, Z4, and 8 Series models and you can see why BMW has reported a drop in the profits for the third quarter.
How Did the Competition Cut into the Margins?
Even though BMW had stronger sales than in the past, the rise in overall sales was only slight. The margins that were made per car was reduced from 8.6 to 4.4 percent for the year so far. The goals that BMW set forth at the beginning of the year offered a target range for the margins of 8 to 10 percent and with margins that reached to well below five percent, the brand was not able to have the operating return expected. This drop in margins has a lot to do with the additional competition in many of the markets.
More Expenses for the Fourth Quarter
There is an expected capital expenditure rise in the fourth quarter for BMW. This is due to the newest version of the most popular BMW model in the world, the 3 Series. This car is certainly the cash cow of the brand and it must move forward, which means that additional measures will need to be taken in order for BMW to see the profits they expect to experience for the next quarter. The brand seems confident they can still reach a free cash flow of three billion euros for the year.
Will BMW Reach its Target
Once the new 3 Series makes it to the market, and the tariffs and price wars settle, it seems that BMW should be able to reach its goal by the end of the year. The third quarter seems to have been one of those times when there are more expenses and unexpected challenges than in other periods of the year. It will be interesting to see if the brand is able to reach the goals it has set forth by the end of the year or if we will see a shift in margins for the future.