BMW warns of slowing sales as inflation and rate rises bite- Newshubweek

BMW warns of slowing sales as inflation and rate rises bite
Written by Arindam

BMW has warned that sales of its luxury models are already slowing as consumers battle inflation and higher interest rates, becoming the first large carmaker to predict economic turmoil will damp demand this year.

The Munich-based group’s shares fell 6 per cent to €76.26 by early afternoon as worries about the global economy outweighed the posting of earnings that beat market expectations in the last quarter.

BMW reported earnings before interest and tax of €3.4bn in the three months to end of June, a 32 per cent drop on the same period last year, when orders rebounded sharply after pandemic lockdowns, but higher than the figure most analysts had predicted.

However, the premium brand warned that “ongoing inflation and interest rate hikes will continue to shape the macroeconomic environment in the coming months and impact demand”.

It added that an “above-average order book — particularly in Europe — is expected to normalise towards the end of the year”.

BMW boss Oliver Zipse said: “New orders received are somewhat reduced. [But] at the same time, [BMW] has an order backlog, especially when it comes to e-vehicles, which is at an all-time high.”

The warning from BMW contrasts with recent comments by rival Mercedes, which last week raised its earnings forecast for the year, saying it continued “to see healthy and high quality demand for its products for the second half of the year, in all core markets”.

The Stuttgart-based group added that “demand is seen remaining higher than supply” for the rest of 2022.

It also comes days after Stellantis warned that economic “clouds” including inflation and higher energy prices would hit car demand in the future.

“We can expect that at one point in time this will have an impact on the market,” chief executive Carlos Tavares warned.

But he added that Stellantis, which owns BMW rival Alfa Romeo as well as Jeep and Peugeot, was protected this year because of its strong order book.

“BMW is the first [manufacturer] to signal caution on the demand front,” said Daniel Röska, an analyst at Bernstein.

“The important message is the timing: investors have mainly been expecting growing weakness in 2023,” he added.

“Given the length of current order books, a warning for year-end ‘22 likely implies that BMW is already seeing weakening consumer sentiment today — likely led by flagging European demand.”

Roughly 70 per cent of BMW’s sales are made in Europe and China, with the Americas accounting for a further 18 per cent.

BMW said its free cash flow target for the year was at least €10bn, a drop of €2bn on previous guidance, partly owing to lower demand.

Finance chief Nicolas Peter said the outlook “assumes that political and economic conditions will not deteriorate significantly” and “does not include any significant tightening of sanctions against Russia or countermeasures by Russia, including an interruption in gas deliveries”.

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