Red Alert


Image source: BMW

What's going on?

BMW doesn’t want to alarm anyone, but the German automaker reported a weaker-than-expected second quarter on Wednesday – and its first quarterly loss in over ten years.

What does this mean?

BMW’s quarterly loss was almost inevitable: showrooms were forced to shut, consumers forced to stay home, and businesses forced to delay big purchases – like car fleets – in an effort to save what money they could. But that loss was still worse than investors had predicted, and came with more bad news: BMW admitted its profit this year would be significantly below last year’s total, and that its “free cash flow” – that is, the amount left over after making the necessary reinvestments into the business – would be zilch. That might explain why its stock fell 5% on Wednesday.

Why should I care?

For markets: It’s a carpool.

It’s not just BMW that’s been T-boned by coronavirus: Volkswagen, the world’s biggest carmaker, recently reported a loss of almost $3 billion and cut its dividend, while Mercedes-maker Daimler said it would need to cut 20,000 jobs. Even the excitement surrounding electric vehicles (EVs) might now be waning: EV-maker and stock market newbie Nikola saw its stock fall 20% after its earnings report this week – and backers of investor-favorite Tesla could be getting nervous too.

The bigger picture: Make that a convoy.

Continental – one of the world’s biggest suppliers of auto parts – also revealed a quarterly loss on Wednesday, going to show the knock-on effect of reduced car sales. The German company is expecting 20% less demand for parts this quarter versus a year ago, perhaps because of all the unsold cars sellers need to make their way through first (tweet this). And with that, Continental’s name was added to the ever-growing list of companies choosing not to forecast their future earnings…

Originally posted as part of the Finimize daily email.

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