Electric cars will cost more to make, BMW warns

Howard Mustoe
Tue, August 1, 2023 

BMW i4 electric automobile

BMW has warned investors that it was suffering higher costs in developing electric vehicles, sending its shares down by more than 6pc.

The carmaker also reported a lower profit margin for the three months to the end of June, which disappointed investors.

It is stocking up on parts anticipating an improvement in deliveries, which hit profitability and cash flow, it said.

The announcement was made in advance of its full earnings, due on Thursday. Investors will look for more detail on how BMW expects to improve its finances through the rest of the year, where it expects an improvement in its margins.

“BMW Group expects higher expenses for suppliers due to inflation and the supply chain to continue to be a headwind in the second half of the year,” it said.

Cash flow would be hit by an “increase in inventory to build product supply pipeline, and higher material and raw material costs,” it added.

Rival Mercedes has already suggested that a boom in its top-end models, which are highly profitable, may be cooling as more customers opt for its lower-margin middle-market vehicles. A similar shift could also hit BMW.

At the luxury end of the market, Bentley warned last week that its own post-Covid heyday may be over. It said that a repeat of its record-breaking earnings last year is unlikely after orders in the first half of the year slipped. Deliveries fell 4pc to 7,096.

Separately, Toyota said sales leapt by almost a quarter for the first three months of its fiscal year, buoyed by high demand that allowed it to raise prices.

Operating profit for the period hit a record 1.1 trillion yen (£6 trillion), helping send the carmaker’s shares to a record high, valuing the firm at 39.9 trillion yen.

Bloomberg analysts expect Japanese car sales to rise by almost 20pc in Japan and the US, although China remains a challenge as foreign carmakers are undercut by domestic players.

Toyota has recently launched an offensive on the highly competitive Chinese electric car market.

One of the slowest adopters of pure electric power for cars, preferring its own hybrid and hydrogen technology, the company said it and its suppliers will accelerate developing new parts for electric models as well as high-tech interiors demanded by Chinese buyers.

The plan with suppliers Denso and Aisin marks a ramp-up in its electrification efforts, although Toyota indicated that it will not abandon its other technologies.

Meanwhile, one of the largest leasing companies for electric cars in the UK is up for sale after investor Legal & General said it would not supply extra funding.

Onto will either be sold, Sky News reported, or try to attract some other form of financing.

Leasing electric cars is a tax-efficient way of driving the vehicles, as they can be hired long-term via a salary sacrifice scheme.

Legal & General pumped in millions of financing in May and June but last month called time on more liquidity.

The volatile price of electric cars has adversely affected some lenders, with a price war started by Tesla spreading to other carmakers and cutting the value of their stock of vehicles.

Rising interest rates have also squeezed margins for large fleet owners and the relative newness of the second-hand electric car market has meant prices for some models have suffered. L&G was approached for comment.