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What's going on?

German carmaker BMW reported better-than-expected quarterly earnings on Wednesday, proving just how important it is to make friends in all the right places.

What does this mean?

BMW is well-known in the industry for having strong relationships with suppliers of its microchips, arguably because its focus on luxury models means it’s able to pay more than most of its rivals. That means it’s been handling the semiconductor shortage better than most: the company’s deliveries were only down 12% last quarter compared to last year, compared to, say, rival Volkswagen’s 24% decline.

But 12% is still a drop-off, and BMW’s been trying to make up for it by pushing its more profitable models. That – along with a jump in sales of its fully electric vehicles – helped boost profit by a better-than-expected 50% versus the same time last year. That might explain why the company’s still confident in its September decision to raise its full-year profit outlook.

Why should I care?

The bigger picture: New cars are old news.
The drop in car production doesn’t mean no one’s buying cars, mind you: they’re just turning to second-hand models instead, where prices are now so high that some hand-me-downs are more expensive than their brand new counterparts. And since car-buying overall is still going strong, carmakers’ finance segments – which offer customers the opportunity to pay in instalments – have been banking pretty healthy profits too.

Zooming out: No chips for Christmas.
The tech industry feels carmakers’ pain: Apple has reportedly slashed production of iPads by half, and Nintendo production of its Switch consoles by 20%. And if even those giants are suffering, spare a thought for smaller firms without the clout to get anywhere near the chips they need. And fewer gifts for Christmas, then, could mean that consumer spending will take a hit over the all-important holiday season. So much for happy holidays…

Originally posted as part of the Finimize daily email.

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