Why BMW’s Profit Boomed Despite the Global Chip Shortage

German automaker BMW (OTC:BMWYY) (OTC:BAMXF) reported a strong second-quarter profit and raised its full-year earnings guidance on Aug. 3, while warning that the ongoing global semiconductor shortage and higher commodity prices could dent its second-half results. 

Nearly all of the global automakers have been affected by the chip shortage, which has forced factories around the world to cut production amid high consumer demand. But BMW has fared better than most of its rivals, having secured relatively good supplies of chips so far in 2021. 

That has put it in position to take advantage of an environment in which consumers are willing to pay higher prices for the vehicles that are available, driving its strong profit in the second quarter. But BMW’s chief financial officer warned that the company may not fare quite as well in the second half of the year.

The BMW sign atop its corporate headquarters in Stuttgart, Germany.

Image source: BMW.

How BMW performed in the second quarter of 2021

BMW’s operating profit of just over 5 billion euros ($5.9 billion) was a huge improvement over the operating loss of 666 million euros it posted in the second quarter of 2020, after lengthy factory shutdowns amid the COVID-19 pandemic. 

Of note, it was also a significant improvement over the operating profit of 2.2 billion euros BMW posted in the second quarter of 2019, before the pandemic, and well ahead of consensus analyst estimates as reported by Thomson Reuters.

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Much of the windfall was due to BMW’s enhanced pricing power amid worldwide shortage of new cars, trucks, and SUVs — and its ability to supply those vehicles. While most automakers’ second-quarter deliveries were down from the second quarter of 2019, BMW’s were up 8.5% to just over 702,000.

BMW got very good prices for those vehicles, too, as customers flocked to its relatively well-stocked dealer lots. The EBIT margin (earnings before interest and tax, divided by revenue) in BMW’s automotive segment was 15.8% in the second quarter, more than double the 6.5% it managed in the second quarter of 2019. 

BMW Motorrad, the company’s motorcycle unit, also benefited from strong pricing with an EBIT margin of 17.2%, versus 14% in the same period in 2019.

A white BMW i4, an electric sedan, and a silver BMW iX, an electric SUV, parked on the company's headquarters campus in Germany.

BMW is ramping up its electric vehicle efforts. The battery-electric i4 and iX will launch this fall, with more new EVs to come next year, CEO Oliver Zipse said. Image source: BMW.

What BMW’s CEO had to say

CEO Oliver Zipse said he is now committed to ramping up BMW’s electric-vehicle efforts (“e-mobility,” in BMW-speak) as quickly as possible. The company will launch two long-range battery-electric models, the i4 sedan and iX SUV, later this year, with more coming next year. 

But, Zipse said, some regions are adopting electric vehicles more quickly than others — and BMW will have the ability to vary the drivetrains it offers as the situations evolve, something he sees as a competitive advantage. 

“In Europe, for example, new vehicle registrations in Norway and the Netherlands are already dominated by battery-electric drivetrains, while other countries in the EU don’t even have a rudimentary charging infrastructure,” Zipse said.  

“In the US, California continues to lead the way on e-mobility, but demand for vehicles with combustion engines remains strong in many other states,” he continued. “In Asia, countries like Japan and Korea have the potential for fuel cell drivetrains. China is driving the pace on [battery-electric vehicles].”

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Looking ahead: BMW’s latest guidance for 2021

Nicolas Peter, who holds a title equivalent to the chief financial officer of a U.S. company, said that while “we generally expect a positive business development for the full year 2021,” he is being cautious with full-year guidance because of the “uncertainty surrounding semiconductor supplies.” 

That said, here’s what Peter said auto investors can expect from BMW for the full year, relative to its 2020 results: 

  • A “significant increase” in pre-tax earnings. (2020 profit before tax: 5.22 billion euros.)
  • A “solid increase” in automobiles delivered to customers, with a “significantly higher” percentage of electric and hybrid vehicles in the overall mix. (2020 deliveries: 2,325,179)
  • Automotive EBIT margin at the “high end” of the target 7% to 9% range. (2020: 2.7%.)
  • Motorcycles EBIT margin between 8% to 10%. (2020: 4.5%)
  • Financial services return on equity between 17% and 20%, higher than its earlier forecast of 12% to 15%. (2020: 11.2%)

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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View more information: https://www.fool.com/investing/2021/08/03/bmw-q2-earnings-profit-guidance/

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