BMW looks to China JV, electric cars to deliver higher margins

German manufacturer's chief financial officer says orders fell because of the latest pandemic-related lockdowns, but is optimistic about Q1 if economic activity restarts 

BMW looks to China JV, electric cars to deliver higher margins
A man looks at secondhand BMW cars at a dealership in Beijing. The German carmaker plans to plans to increase its share in the company's Chinese joint venture to 75%. File photo by Reuters

(ATF) German carmaker BMW is planning big investments in electric cars, as well as simplifying its vehicle portfolio, and raising its share in its joint venture in China from 50% to 75% in 2022.

BMW's chief financial officer Nicolas Peter told Reuters that the moves should help push the iconic luxury automotive manufacturer back to its pre-pandemic operating margin target of 8% to 10%.

Peter said orders had fallen because of the latest pandemic-related lockdowns, but added: "If activity starts again after the middle of February, we should be able to deliver a reasonable first quarter."

Escalating restrictions in Germany and other eurozone nations deciding to tackle the coronavirus pandemic have significantly slowed economic activity, fuelling fears that the bloc faces a double-dip recession, but Peter cited a Brexit deal between the European Union and the UK as one sign of improving market conditions.

"We're not talking about far away in the future, but it is a goal that we're looking at systematically in the short term," Peter said during an interview at BMW's Munich headquarters. The company will publish its 2021 margin target in March.

A surge in premium car sales in China, the world's largest car market, provided much-needed help for BMW's business and it should report a 2020 operating margin of between 2% and 3%, Peter said.

The Global Green Energy Transport and Technology Leaders Index created by Asia Times Financial in collaboration with ALLINDEX, is a benchmark that tracks shares of leaders in electric vehicle and renewable energy production and storage businesses.

Changing car line-ups from petrol and diesel to electric vehicles (EVs) to meet emissions targets in China and Europe and compete with US electric carmaker Tesla, is hugely expensive, and was a driving factor in the recent merger of PSA and Fiat Chrysler to form Stellantis, the world's fourth-largest carmaker.

'WE CAN MAKE IT ALONE'

Further consolidation is expected as carmakers struggle with electrification and investing in self-driving technology, but Peter said BMW could handle the transition. "We are very confident we can make it alone," he said.

EVs are expensive to develop and still account for a small portion of sales, thus are less profitable for BMW, Peter said. "That's why investment is so important," he said. "We have to find ways to get to a different cost level, especially with cells and batteries."

BMW is embarking on a push to cut complexity – reducing engine variants and options for different vehicles, scrapping features customers don't use, plus overhauling software to focus on a simpler, more efficient way of building vehicles. In 2020, BMW's global sales of EVs rose 31.8% over 2019 and says it plans to double its sales of fully-electric vehicles this year.

Traditionally, BMW has considered Germany's other carmakers as its rivals, but Peter said increasingly it is looking to Tesla and companies like China's Nio – with its focus on interaction between car and driver - for inspiration. He said two-thirds of Chinese consumers said in polls that they would switch to other brands and products if they provide a better digital experience.

With reporting by Reuters

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