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How BMW Is Posting Record Profits and Gaining Market Share

By John Rosevear – Aug 14, 2021 at 8:32AM

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It's almost as if nobody told BMW about the semiconductor shortage.

If you've been car shopping recently, you know that the global shortage of semiconductors has hit the auto industry hard. Many dealers have only a few cars on the lot -- and the cars they have are selling at full price without negotiation. Most automakers have seen their sales and revenue suffer -- but not all.

BMW AG (BAMXF 2.64%) (BMWYY 0.43%) has been a surprising exception. Somehow, amid the chip shortage, BMW has been able to ship plenty of cars, SUVs, and motorcycles to its dealers around the world, booking nice market-share gains and plenty of profit. In this Motley Fool Live video, recorded on Aug. 5, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear dig into BMW's most recent quarterly earnings report to find out how it's navigating the chip shortage -- and how its own transition to electric vehicles is starting to play out. 

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Nick Sciple: Moving on from General Motors and Ford, these North American automakers, let's look at BMW in Germany. What's going on with BMW over there in Europe?

John Rosevear: BMW had a really big, nearly $6 billion in dollars in operating profit versus a $700 million loss a year ago. Of course, they were in Europe affected by COVID and plans for shutdown. Much as say, well, here, Indonesia and everywhere else. What BMW rather has going forward is that they've been able to get more chips than most of the others. They have good long-term relationships with their suppliers. The way the dice had fell. Whereas one of Ford's suppliers had a factory fire in Japan and this and that, and that has exacerbated their situation. BMW has escaped that. Their suppliers have been able to do fairly well. So they've been able to build and ship more vehicles as a percentage of what they might have wanted to do in the second quarter than a lot of their rivals. If you want the Cadillac or you want the Acura or whatever, but the BMW dealer has stock on the lot, you're going to buy the BMW. Again, because there are shortages elsewhere, they've been able to get great prices, minimal incentives. That's really what drove it. We've got cars people want at a time where cars are relatively scarce. We're getting good prices for them. We're selling a lot of them. Their shipments were actually up from the second quarter of 2019 before the pandemic. So clearly, at least temporarily, at least gaining share because they're able to make and sell and ship the vehicles. That's great. It was a happy quarter for them. They warned of course that, just like everybody else would say, we don't know if we're going to be hit worse by chip supplies in the second half of the year. Alternatively, if our competitors -- supplies ease across the industry, this feast will come to an end to some extent. So they were also somewhat moderate on guidance. But overall, it was an outstanding quarter for them.

Sciple: This is one of those times where the supply chain manager gets to shine. It's very rare that that becomes front and center, the star of the company. Seems that that's what's happening, at least to some extent in the case of BMW. BMW also on the EV front, working on expanding EVs in Europe, which is a little bit different market. Maybe you can talk about that, John. What's BMW doing on their EV initiatives?

Rosevear: Well, BMW is an interesting story because they rushed into EVs in the early part of last decade. You remember the i3 and then the i8 hybrid sports car, which had this little three-cylinder engine, but drove like a proper modern sports car and so forth. Some really interesting technologies, carbon fiber technologies and so forth. Then they shut it all down. There was a change of CEO. The board said you're spending too much money and not making enough money, etc. They then had to come back a couple of years ago and reignite a lot of those programs. Because the board at BMW has been so conservative, they've had a little bit of a conservative strategy. We're going to try to build internal combustion, hybrid, and electric vehicles all from the same architecture, all on the same assembly lines and so forth, because we don't know how the mixes are going to play out and that way we can respond and so forth. They've evolved a bit from that strategy. They now have some dedicated electric vehicles. There was one out, the version of the X3 SUV that came out, I think, the end of last year. This fall they are launching the i4 sedan, which is a roughly 3-series sized, fully electric sedan, and also an iX, which is a roughly, I think it's the size of the X5, give or take. An electric SUV in any event. Those are coming, I think, both this fall. Then there are more coming next year. BMW is saying that they're going to show more of their plan next month at the Auto Show in Munich, assuming it happens amid COVID. But one way or another I expect BMW to make a presentation even if it's by webcast; talking about what they're going to do a little longer-term. I think that will be very interesting to watch.

Sciple: BMW operating in the European market, you have to put some chips down on EV or you will start getting slapped with fines, which maybe explains that change in path from management. 

Nick Sciple has no position in any of the stocks mentioned. The Motley Fool recommends BMW. The Motley Fool has a disclosure policy.

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Stocks Mentioned

BMW Stock Quote
$85.45 (2.64%) $2.20
Ford Stock Quote
$14.08 (0.36%) $0.05
General Motors Stock Quote
General Motors
$40.46 (0.87%) $0.35
Bayerische Motoren Werke Stock Quote
Bayerische Motoren Werke
$29.24 (0.43%) $0.12

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