German automaker BMW (BAMXF 1.88%) (BMWYY) reported on Wednesday that its third-quarter operating profit jumped 50% from a year ago, to 2.9 billion euros ($3.36 billion), as higher transaction prices helped offset a drop in deliveries amid a global shortage of computer chips.
Almost all of the global automakers have been affected by the chip shortage, which has forced auto factories around the world to cut production despite ongoing high consumer demand for new vehicles. To date, BMW has weathered the chip shortage better than many rivals, though chip-related production constraints led to a 12% decline in its vehicle shipments versus the third quarter of 2020.
Still, BMW has been able to provide its dealers with relatively good supplies of vehicles, allowing them to take advantage of an environment in which consumers are willing to pay strong prices for the cars and SUVs that are available.
The top of BMW headquarters in Munich. Image source: BMW AG.
How BMW performed in the third quarter of 2021
BMW's third-quarter operating profit of 2.9 billion euros fell short of the 5 billion euros it reported in the second quarter, but it was still a better-than-expected result in a challenging environment. Wall Street analysts polled by Bloomberg had expected an operating profit of 2.5 billion euros, on average.
But despite the drop in automotive shipments, BMW's revenue was actually up 4.5% year over year, to 27.4 billion euros, on a good result for its financial-services subsidiary and a gain in total automotive revenue.
By prioritizing production of its higher-priced and most-profitable models, and deliveries to North America, BMW was able to report a 3% increase in automotive revenue (to 22.62 billion euros) despite shipping fewer cars and SUVs than it did a year ago.
That strategy delivered clear benefits to BMW's bottom line. Operating profit in its automotive segment, which includes sales of four-wheeled BMW, Mini, and Rolls-Royce vehicles, rose 19% from a year ago to 1.48 billion euros.
BMW Motorrad, the company's motorcycle unit, followed a similar strategy of prioritizing higher-profit models and markets, with mixed results. The unit reported a slight 0.6% increase in revenue despite a 14% drop in shipments, though its operating profit fell 13% from a year ago to 39 million euros.
Higher auction values for off-lease vehicles helped BMW Financial Services to a pre-tax profit of 988 million euros, nearly double its year-ago result.
What BMW's CEO said
Chief executive officer Oliver Zipse said that while demand for BMW's latest electric vehicles (EVs) has been strong, particularly in Europe, more work needs to be done on the region's charging infrastructure.
"The growth of electric cars already exceeds the growth of current charging capacity in Germany by factor of five," Zipse said. "Many E.U. countries still don't have a charging network at all. Without a coherent framework, no technology can be implemented or become widely accepted."
Zipse emphasized that BMW's consumers are "already enthusiastic" about EVs, but said that regulators will need to take the state of Europe's charging networks into account when debating emissions limits beyond 2030.
Looking ahead: BMW confirms upbeat outlook for 2021
BMW raised its full-year profitability outlook in September on the expectation that strong pricing for new and used vehicles would continue through the end of 2021. Chief financial officer Nicolas Peter stood by that guidance, with a caveat that continued uncertainties around chip supplies and rising raw material prices will likely have some impact on earnings toward the end of the year.
Here's what Peter said auto investors should now expect from BMW at year end, 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. Peter noted that through September, BMW had already sold more than twice as many battery-electric vehicles than in 2020. (Total 2020 deliveries: 2,325,179.)
- Margin for automotive earnings before interest and taxes (EBIT) at the "high end" of the target 9.5% to 10.5% range. (Earlier guidance: Between 7% to 9%. 2020: 2.7%.)
- A "significant increase" in motorcycle deliveries, and a segment EBIT margin between 8% to 10%. (2020: 4.5%.)
- Financial services return on equity between 20% and 23%, higher than its earlier forecast of 17% to 20%. (2020: 11.2%)
