BMW Group remains on track for success as transformation continues
In an uneven economic environment, the BMW Group once again delivered a strong operating performance in the third quarter.
Its solid financial key figures are evidence of the company’s economic success in the face of rising raw material and energy costs.
“Compelling products are the best answer to a challenging environment. They give us stability in the present and create growth prospects for the future. We are systematically investing, for this reason, in the technology clusters of the NEUE KLASSE. We firmly believe that these highly innovative products will take our offering to the next level,”
said Oliver Zipse, Chairman of the Board of Management of BMW AG, on Thursday.
“Our solid third-quarter results underline that flexibility creates resilience. Especially under volatile conditions, our globally balanced footprint and technology-open approach are proving to be a key success factor. That is why, after nine months, we are on track to meet our targets for the year. The market success of our fully-electric models, in particular, means we can look forward to the coming months with confidence.”
The significant growth in sales of fully-electric and electrified vehicles is also reflected in the decrease in CO2 emissions in the EU new vehicle fleet: The BMW Group could well outperform its previous target and, based on current data, reduce its EU fleet emissions by 5-10% year-on-year. A slight reduction (up to -4.9%) had previously been planned.
Deliveries of fully-electric vehicles more than double
In the year to the end of September, bolstered by growing demand, the company delivered over 128,000 electric vehicles to customers – more than twice the number for the same period of 2021 (128,195 units; YTD Sept. 2021:59,688 u./ +114.8%). The third quarter saw rising sales and new orders for the BMW iX3*, iX and i4 and the MINI Cooper SE*, which resulted in a strong order book. The new BMW i3, the long-wheelbase version of the fully-electric BMW 3 Series Sedan that recently became available in China, is also being well received by customers.
The new BMW X1 earned very positive feedback at its recent world premiere – as did the new BMW 7 Series.
Both models come with different drive train variants: as pure-electric vehicles (BEVs), hybrids (PHEVs) and with petrol and diesel engines. The first fully-electric BMW i7s* will be launched in November, as well as the all-wheel-drive BMW iX1*. The BMW i4 eDrive35*, the new entry-level model for the successful fully-electric mid-range BMW Gran Coupé, will also be available for the first time. These will be joined in 2023 by the BMW i5 and the fully-electric Rolls-Royce Spectre, which was unveiled in October.
Despite the impact of global disruption to supply chains and COVID lockdowns in China, the BMW Group delivered a total of 1,747,838 vehicles to customers in the first nine months. This represents a moderate decrease from the all-time high of the previous year (YTD Q3/2021:1,932,224 u./ -9.5%). As a result, the BMW Group remains number one in the premium segment in Germany and worldwide. With 587,744 vehicles delivered to customers in the third quarter, sales were on a par with last year (Q3/2021:593,177 u./ -0.9%). In the month of September, the BMW Group reported solid sales growth of 6.6%, with 210,543 vehicles delivered to customers. The BMW Group has confirmed its guidance for the full year 2022, targeting slightly lower sales than last year and doubling its deliveries of fully-electric vehicles.
Revenues reach new level
In the third quarter of 2022, BMW Group took revenues to a new level, reaching € 37,176 million (YTD Q3/2021: € 27,471 million/ +35.3%; adjusted for currency translation effects: +27.4%). Revenues for the first nine months of the year were also significantly higher, at € 103,088 million (YTD Q3/2021:€ 82,831 million/ +24.5%; adjusted for currency translation effects: +18.8%). Contributing to this were solid pricing for new and used cars, a favourable product mix and, in particular, revenues from the Chinese joint venture BMW Brilliance Automotive Ltd. (BBA), which has been fully consolidated since 11 February.
The cost of sales also increased significantly – owing to rising raw material and energy costs and inclusion of BBA’s cost of sales, as well as expenses from full consolidation of the company amounting to € 2.7 billion.
Undeterred by macroeconomic and geopolitical challenges, the BMW Group is continuing on its path of transformation. In the past nine months, research and development costs (in accordance with IFRS) have increased significantly to € 4,885 million (YTD Q3/2021: € 4,337 million/ +12.6%). The R&D ratio, according to the German Commercial Code, came in at 4.7% (YTD Q3/2021: 5.3%; Q3/2022: 5.3%; Q3/2021: 6.5%). The bulk of the R&D costs were attributable to new models, especially those of the NEUE KLASSE, as well as further electrification and digitalisation of the vehicle fleet. In the third quarter, the company also presented its new round battery cells, which will power the fully-electric NEUE KLASSE models even more efficiently.
The BMW Group invested a further € 4,680 million (YTD Q3/2021: € 2,661 million/ +75.9%; Q3/2022: € 1,751 million; Q3/2021: € 952 million/ +83.9%) in equipment and expansion of its plants during the nine-month period. This amount primarily reflects upfront investments for ramping up e-mobility and BBA capital expenditure following full consolidation. A further increase in investment activity is expected in the fourth quarter. At the end of September 2022, the capex ratio stood at 4.5%.
Group EBT for the third quarter amounted to € 4,100 million (Q3/2021: € 3,417 million/ +20.0%). After nine months, Group earnings had reached € 20,256 million (YTD Q3/2021: € 13,153 million/ +54.0%). The Group EBT margin came in at 19.6% (YTD Q3/2021:15.9%; Q3/2022: 11.0%; Q3/2021: 12.4%).
Group net profit for the first nine months totalled € 16,407 million (YTD Q3/2021: € 10,207 million/ +60.7%; Q3/2022: € 3,175 million; Q3/2021: € 2,584 million/ + 22.9%).
Due to the full consolidation of BBA, Automotive Segment revenues increased significantly in the first nine months of the year to € 89,031 million (YTD Q3/2021: € 70,373 million/ +26.5%). In the third quarter, the segment posted revenues of € 32,290 million (Q3/2021: € 22,628 million/ +42.7%).
The high-value product mix, solid pricing for new vehicles and the sustained stable trend in used car prices all continued to have a positive effect.
In the first nine months of the year, and particularly the third quarter, rising costs for materials and logistics impacted the segment’s EBIT. This primarily reflects the limited availability of semiconductors and supply chain disruptions, as well as higher raw material and energy prices.
The segment’s earnings before financial result (EBIT) totalled € 7,703 million for the year to the end of September (YTD Q3/2021: € 7,945 million/ -3.0%; Q3/2022: € 2,873 million; Q3/2021: € 1,756 million/ + 63.6%). The EBIT margin came in at 8.7% for the first nine months (YTD Q3/2021: 11.3%) and 8.9% for the period from July to September 2022 (Q3/2021: 7.8%).
Excluding the effects of the BBA full consolidation on segment EBIT, the EBIT margin for this period was 10.1% (YTD Q3/2021: 11.7%).
Results benefited from the earnings contribution of BMW Brilliance Automotive Ltd., which has been included since the full consolidation of BBA on 11 February 2022. However, this was partially offset by headwinds from the initial consolidation, such as depreciation and amortisation from the purchase price allocation and elimination of interim profits, totalling around € 2.7 billion. Depreciation and amortisation from the purchase price allocation dampened third-quarter earnings by € 0.4 billion.
Free cash flow in the Automotive Segment totalled € 9,876 million (YTD Q3/2021: € 6,299 million) at the end of the third quarter of 2022. Of this € 5,011 million come from the first consolidation of BMW Brilliance Automotive Ltd. At year end, free cash flow in the Automotive Segment should amount to at least € 10 billion.
“In our core segment, we are making tremendous progress in the transformation towards e-mobility and digitalisation. The BMW Group’s financial strength is a crucial requirement for extensive further development of the company. The company is ideally positioned to accomplish this feat,” said Nicolas Peter, member of the Board of Management responsible for Finance, in Munich on Thursday.
Motorcycles segment continues to increase deliveries
The Motorcycles Segment once again benefited from strong demand in the third quarter, posting solid growth in sales volumes anddelivering 51,778 motorcycles and scooters to customers (Q3/2021: 48,999 u./ +5.7%; YTD Q3/2022: 159,333 u.; YTD Q3/2021: 156,609 u./ +1.7%). The popular BMW GS models and the new, fully-electric BMW CE 04 were among the main sales drivers. Revenues showed a solid increase to € 2,485 million in the nine-month period (YTD Q3/2021: € 2,262 million/ +9.9%) and rose significantly in the third quarter (Q3/2022: € 822 million; Q3/2021:€ 641 million/ +28.2%).
BMW Motorrad significantly increased its third-quarter earnings before financial result (EBIT) to € 87 million (Q3/2021: € 39 million/ +123.1%; YTD Q3/2022: € 322 million; YTD Q3/2021: € 323 million/ -0.3%). The EBIT margin rose accordingly to 10.6% (Q3/2021: 6.1%; YTD Q3/2022: 13.0%; Q3/2021: 14.3%/ -9.1%).
Financial Services Segment continues to benefit from stable used car markets
Financing and leasing business with retail customers trended lower during the reporting period, with a total of 1,178,286 new contracts concluded (YTD Q3/2021: 1,509,195 contracts/ -21.9%).
The main reasons for this decrease were higher interest rates overall, and the associated price increases for customers, as well as intense competition in the financial services sector. An additional factor was the limited availability of new vehicles, due to continued difficulties with the supply of semiconductor components.
Higher prices in the automotive sector and an improved product mix resulted in a higher average financing volume per vehicle for the financial services business during the reporting period, which partly offset the decline in new contracts. Currency tailwinds continued to have a positive impact.
The percentage of BMW Group new vehicles leased or financed by the Financial Services Segment stood at 42.4% at the end of the third quarter (YTD Q3/2021: 50.7%/ ‑8.3%-points).
During the reporting period, the Financial Services Segment generated earnings before tax of € 2,672 million – a moderate decrease from the all-time high for the same period of last year (YTD Q3/2021: € 2,924 million/ -8.6%). The segment benefited from sustained high income from the resale of end-of-lease vehicles, particularly in the US, Germany and the UK. In view of the geopolitical uncertainties and weaker macroeconomic outlook, the company recognised higher credit risk provisions in the third quarter – although the actual credit loss rate remained at a historically low level.
BMW Group confirms adjusted guidance in volatile environment
Despite the deteriorating macroeconomic conditions and volatile geopolitical situation caused largely by the war in Ukraine and related sanctions, the BMW Group confirmed its adjusted guidance for the year in its quarterly business update at the end of the second quarter.
The company does not currently expect energy supply shortages to disrupt production this year. It assumes that energy and material costs will remain on a high level in the fourth quarter.
High inflation rates and interest rate hikes are causing conditions for consumers to deteriorate, which will impact their purchasing behaviour in the coming months. Our higher-than-average order books are therefore also expected to normalise, especially in Europe.
The number of deliveries is forecast to increase significantly in the fourth quarter, compared to the third quarter of 2022.
The BMW Group expects deliveries for the full year to be slightly lower than in 2021, although sales of fully-electric vehicles should still double.
A moderate reduction in CO2 emissions in the EU new car fleet can now be assumed. This is largely due to the higher than planned increase in the percentage of BMW Group deliveries from electrified vehicles.
The company expects Group pre-tax earnings to be significantly higher, due to the full consolidation of BBA – and despite the slight decrease in deliveries compared to the previous year.
The EBIT margin for the Automotive Segment is still forecast to be within the range of 7-9%. Positive price and mix effects, combined with continued robust development in the used car markets, should partially offset the expected slight decrease in deliveries and rising raw material and energy prices. RoCE for the automotive business is also likely to remain within the range of 14-19%.
A slight increase in deliveries is projected for the full year for the Motorcycles Segment. The EBIT margin is likely to be within our target range of 8-10% and RoCE for the segment should be between 19-24%.
The forecast for the Financial Services Segment calls for an increase in earnings, taking advantage of continuing positive development in the used car markets ‒ although higher provisions for credit risks will have a dampening effect. Return on equity (RoE) should be within the range of 17-20%, adjusted in line with the second quarter announcement. From the current perspective, the Financial Services Segment is adequately prepared for credit and residual value risks.
The targets outlined above will be reached with significantly higher employee numbers, as a result of the full consolidation. The percentage of women in management positions at the BMW Group is forecast to increase slightly, independently of the increased stake in BMW Brilliance.
Nicolas Peter:
“As a global premium manufacturer, we are benefiting now more than ever from our balanced positioning in the three major regions of the world: Europe, the Americas and Asia. Overall, we expect the positive momentum for our company to continue in 2023. Our attractive products and growing demand for e-mobility make us optimistic about the future.”
