BMW’s chip shortage view darkens in contrast with Stellantis

August 3, 2021

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BMW AG warned of uncertain months ahead as the global chip shortage worsens, staying cautious as Stellantis NV surprised with a substantial lift to guidance for the year.

The luxury-car maker said semiconductors are a cloud on the horizon even as it expects to lose sales of no more than 90,000 cars in 2021, equivalent to less than 10% of first-half shipments. Stellantis raised its profitability forecast, saying it could lose production of around 1.4 million vehicles while holding out hope for improving supply toward year-end.

The contrasting commentary suggests BMW is taking a cautious stance on the risks it faces. Investors “will try to determine if it is simply conservatism or something more severe,” Tom Narayan, analyst at RBC Capital Markets, said in an emailed note.

BMW’s earnings before interest and taxes surged to 5 billion euros ($5.9 billion) in the second quarter, beating an average analyst estimate of 4 billion euros, thanks to one-time items including the reversal of a provision for a fine. Still, BMW was downbeat about difficult months ahead.

“The longer the supply bottlenecks last, the more tense the situation is likely to become,” Chief Financial Officer Nicolas Peter said in a statement. “We expect production restrictions to continue in the second half of the year and hence a corresponding impact on sales volumes.”

BMW fell 3.9% as of 1:26 p.m. in Frankfurt, paring its gain for the year to about 13%. Stellantis rose 4.3% in Milan.

Supply Woes

BMW’s expectations mirror concerns raised by rivals. While Volkswagen AG lifted its operating returns forecast, helped by its luxury Audi and Porsche brands, the carmaker warned of worsening supply woes, and Daimler AG dialed back its delivery expectations due to the shortage. BMW has fared better than others thus far, reporting relatively minor disruptions at its factories.

A year on from the depths of the coronavirus crisis, demand for BMW’s models jumped during the second quarter. After Mercedes outsold its rival by almost 30,500 cars during the first three months of 2021, BMW narrowed the year-to-date gap to just over 4,400 cars at the end of June.

BMW also benefited from charging higher prices and prioritizing its most lucrative models. The dynamic has helped take the sting out of rising raw material costs, though the company said those increases will drag on earnings during the remainder of the year.

Free cash flow is expected to rise to 5.8 billion euros, provided the chip crisis doesn’t worsen significantly, up from a forecast of 4 billion euros previously.

BMW’s operating return from automaking jumped to 16%, roughly double its annual forecast of 7% to 9%. The automaker in May said earnings would get a boost of about about 1 billion euros after the company cut its provision for a European Union antitrust probe. That change spurred the manufacturer to lift its automaking margin forecast by one percentage point.

The company previously said it expects a significant increase in earnings compared to 2020 levels and returns from automaking at the upper end of a range between 6% and 8%.

What Bloomberg Intelligence Says

BMW’s strong 2Q headline result was boosted by one-time items, with an underlying adjusted 9.8% auto Ebit margin below consensus compared with Mercedes’ 2Q adjusted margin of 11% and Audi’s of 10.8%. Exceptional items included a known 1 billion-euro provision reversal, but also a new 503 million-euro 1H pension adjustment which undermined the quality of the result. Consensus was already at the top end of Ebit-margin guidance of 7-9% before the pension gain, which implies a weak 2H auto margin of about 6%.

— Michael Dean, BI automotive analyst

–By William Wilkes (Bloomberg)