What's going on?
Quintessential German carmaker BMW said on Tuesday that it wouldn’t make it to the finish line this year, lowering its own forecasts for how much profit it expects to make. Its shares decelerated 5%.
What does this mean?
In its car business, BMW said that it now expects profit margins of 7% (i.e. for every $100 of sales, it’ll keep $7 in the trunk) – down from its previous forecast of at least 8-10%. The carmaker cited the ongoing back and forth between the US and China over trade (it’s one of the biggest exporters of cars to China from the US). And Chinese customers holding off on luxury car purchases to wait for a lower tax rate probably didn’t help either. Higher costs were also to blame, thanks to BMW having to splash out on getting its engines in order ahead of the new European emissions regulations (WLTP) that rolled in this month.
Why should I care?
For markets: The trade war packs a punch.
Daimler (which makes Mercedes-Benz, among other things) lowered its profit expectations in June, and auto supplier Continental did the same in August. Both are expecting to be hurt by import taxes (a.k.a. tariffs) imposed on cars and car parts moving between China and the US. Investors and companies alike were hoping that cool heads would prevail as both countries planned a return to the negotiating table. But those talks were called off last week – making even higher tariffs likely in January 2019 as a result of yet another round of tit for tat.
The bigger picture: Everybody’s suffering.
BMW’s not alone. Between trade tensions and WLTP, European carmakers are skidding all over the show. Volkswagen – of “dieselgate” fame – only managed to get half of its models approved under WLTP, and Porsche has given up on diesel engines completely. Deep (and less polluted) breaths, everyone.