BMW Is Getting Exciting In All the Wrong Ways

Chris Bryant
BMW Is Getting Exciting In All the Wrong Ways

(Bloomberg Opinion) -- It’s a measure of just how difficult life has become for car manufacturers that the once boringly reliable BMW AG is struggling too. In the past BMW’s autos unit unfailingly reported an operating profit margin of at least 8 percent. That’s pretty decent for a mainstream carmaker.

BMW blotted its copybook in 2018 when the automotive business only managed a 7.2 percent return on sales, and 2019 could be even worse. On Tuesday the company set an operating margin range of 6 to 8 percent. The shares fell as much as 5 percent.

Some perspective is called for. Even though BMW is spending billions to electrify and automate its vehicles, the car business should still provide about 2.7 billion euros ($3.1 billion) of free cash flow in 2019. BMW vehicles may not generate much excitement these days, but it was an early mover in electric vehicles (an electric Mini arrives this year), and its range of mobility services is impressive. (1)

The company will still pay out about 2.3 billion euros to investors, or 3.5 euros a share. While that dividend is 50 cents less than last year, the yield is almost 5 percent. At seven times earnings, the shares are hardly expensive. BMW’s balance sheet is plenty strong enough too. It held more than 16 billion euros of cash and marketable securities at the end of December. A crisis this is not.

Still, one can understand why investors are unsettled. BMW’s profit struggles indicate that it’s no longer the master of its own fate. Trade tensions, rising raw material costs, and Brexit uncertainty are a heavy burden when you’re simultaneously trying to manage the demise of the combustion engine. Capping the workforce at current levels and announcing a 12 billion-euro savings drive are prudent steps in view of these burdens. The message this sends, though, is that even BMW is more cautious about its future prospects. Shareholders are too.

(1) Daimler and BMW have merged their mobility operations in a new joint venture.

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Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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