BMW (NASDAQOTH:BAMXF) has seen profits dip in recent quarters. While sales have been strong, the German luxury-car giant has felt the need to invest more in new technologies and new models, as rivals like Volkswagen's (NASDAQOTH:VLKAY) Audi division have become more aggressive.
Both Audi and Daimler's (NASDAQOTH:DDAIF) Mercedes-Benz have said they aim to overtake BMW in global sales within the next several years. Meanwhile, other well-funded luxury brands such as General Motors' (NYSE:GM) Cadillac and Nissan's (NASDAQOTH:NSANY) Infiniti are planning aggressive expansions into BMW's established market turf.
Despite all that, BMW executives said last week they expect the company's profit to rise in 2014. In this video, Fool contributor John Rosevear looks at BMW's prospects for 2014, as well as the automaker's expectation to gain ground this year despite the competitive threat.
A transcript of the video is below.
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John Rosevear: Hey Fools, it's John Rosevear, senior auto analyst for Fool.com. We talk a lot about how the global luxury car market is booming right now, and one of the big beneficiaries of that trend has been BMW.
BMW issued its annual report this past week, and they say that their future is looking pretty bright. The company's profits have been down a bit recently as BMW has stepped up its investments in new products and advanced technology. Profits were down 14% in the fourth quarter of 2013, but they say pre-tax profits will rise in 2014, and they're looking at raising production capacity at their big SUV factory in South Carolina and planning to release 12 new models this year.
Meanwhile, they've expanded production capacity in China and expect to build 400,000 vehicles there this year, up from 300,000 last year. They think profits and sales will both rise significantly in 2014. Last year was a record in terms of sales numbers for BMW, they delivered 1.96 million vehicles, but they expect single-digit growth in the U.S. and low double-digit growth in China in 2014.
Given everything that's going on in Europe, and the increasing competition in the luxury vehicle market, it was definitely a confident forecast and it was something of a surprise. In recent months BMW Chief Financial Officer Friedrich Eichiner and other BMW executives have taken a more subdued tone, talking about the need for heavy investments to keep up with Audi and Mercedes-Benz and other competitors, so to come out and say, hey, we think profits will be up this year, that's a pretty strong statement, and the stock hit a record high on Wednesday after it came out.
What Eichiner actually said is that they expect a percentage increase in pre-tax profits in the high single digits. We talk about BMW's profits being subdued, but they actually made about $11 billion in 2013; that's more than GM or Ford made, and BMW sold a lot fewer vehicles.
But as we keep saying here, luxury vehicles are more profitable than mass-market ones, and that's why you see both GM and Ford and a lot of other companies making big investments in their luxury vehicle brands right now. So a strong outlook for BMW in 2014 despite the fact that pretty much the whole global auto industry seems to be gearing up to try to eat their lunch. BMW investors did well this week, but don't sell yet because the future is looking good. Thanks for watching.
John Rosevear owns shares of General Motors. The Motley Fool recommends BMW and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.