BMW Faces Margin Pressure Despite Revenue Gains

BMW's shares experienced a 2.7% decline following the announcement of a core automotive margin on 2023 earnings before interest and taxes (EBIT) of 9.8%. This figure falls below analysts' forecasts of 9.9%, highlighting the increasing financial pressure facing the luxury automaker.

There aren several factors contributing to BMW's margin challenges. Increased research and development (R&D) spending, higher manufacturing costs, and the company's growing focus on electrified vehicles are all playing a significant role. This focus is underscored by a 13.8% rise in R&D costs in 2023, with investments specifically targeting electrification, digitalization, and automated driving.

BMW's 9.8% automotive core margin also pales in comparison to its chief rival Mercedes Benz, which reported a 12.6% margin in 2023. This discrepancy puts additional pressure on BMW as it navigates an increasingly competitive luxury vehicle market.

While BMW did see group revenues rise by 9% to 155 billion euros in 2023, driven partly by stronger sales of top-end and electric vehicles (EVs), its profit picture is less rosy. Annual net profit dropped by over a third to 12 billion euros, with BMW attributing this decline largely to a higher comparative base in 2022 following the consolidation of its Chinese joint venture, BMW Brilliance Automotive (BBA).

Shareholders will also feel the effects of the company's financial headwinds as BMW's board proposes lowering the dividend payout for the year to 6 euros per share, a drop of 2.5 euros compared to the 2022 dividend.

BMW's expanding investment in the EV segment did bear some fruit in 2023. EV vehicle deliveries jumped by 74% over the previous year, now representing 15% of the company's total sales. However, Citi analysts anticipate continuing margin pressure on BMW and other luxury automakers due to challenges like normalizing price-mix and rising interest rates.

BMW is facing a confluence of financial difficulties as it invests heavily in future technologies while dealing with rising costs and a softening profit outlook. The company's strong showing in the EV segment offers a potential bright spot, but it remains to be seen whether BMW can sufficiently reduce costs and gain a larger market share to offset the ongoing margin pressures.