BMW expects €1bn hit to earnings from escalating tariffs

BMW says newly imposed trade tariffs could dent the carmaker's earnings by €1bn (R19.8bn) this year as escalating trade tensions between China, Europe and the US take a mounting toll on global companies' finances.

The premium carmaker forecast an earnings margin for its cars segment of 5%-7% in 2025, factoring in the impact of a full-year of EU duties on its China-made EV and US duties of 25% on steel and aluminium and vehicle imports to the US from Mexico.

Further tariffs looming from the EU and the US would have a far greater affect on the carmaker, which is the highest automotive exporter by value from the US and exports more than half its vehicles made in Germany outside the EU.

However, executives struck an optimistic tone in a press call at the German group's annual results conference, saying they did not expect the tariffs to remain in place for the whole year.

“If the situation changes, so does our outlook,” CFO Walter Mertl said.

BMW's shares were up 0.7% on Friday compared to a 1.6% rise in Germany's DAX index, which was buoyed by news of a German debt deal.

Germany's premium carmakers who have long relied heavily on strong China sales and US exports are battling a war on two fronts, as fast-growing electric vehicle competitors in China win market share and Donald Trump's tariffs upend their global supply chains.

“In an environment where China has become a much more difficult market and no improvement in sight, the dependency on the US has increased. Tariffs are therefore a significant risk,” said Daniel Schwarz of Stifel Research.

“The impact can be mitigated by producing more in the US, but this comes at a cost,” he added, pointing to the scale advantages of BMW's set-up which focuses on SUV production in the US and sedans in Europe.

Unlike its competitors Porsche, Mercedes-Benz and Volkswagen's Audi, BMW said it is not undertaking a major restructuring of its European operations to lower costs.

Operational costs peaked in 2024 and there are no plans to cut staff in Germany, executives said on a press call.

BMW's net profit slumped by more than a third in 2024 to €7.68bn (R152.08bn) in line with market expectations after weak sales in China and Germany as well as delivery holdups because of problems with a brake dented performance.

Fourth quarter profit dropped 41%, in line with warnings from the carmaker in January that higher fixed costs from unwinding inventory would hit its earnings in the last three months of 2024.

The group proposed an increased payout ratio of 36.7%, among the highest in its history, consisting of a dividend of €4.32 (R85,54) per preferred share for 2024, still down from €6.02 (R119,21) paid out the previous year.