Making money with luxury cars is also difficult, BBA first-half financial reports are released, with both revenue and profit declining together

Recently, the first-half financial reports of the luxury brand BBA have been successively released. Influenced by intensified market competition, BBA presented a less than impressive performance in the first half of the year.

The once strong "money-making" ability of BBA saw a year-on-year decline in revenue in the first half of this year. BMW Group (referred to as BMW below) recorded a first-half revenue of 73.558 billion euros, a 0.7% year-on-year decrease; Mercedes-Benz (referred to as Mercedes-Benz below) had a first-half revenue of 72.616 billion euros, a 4% year-on-year decrease; Audi Group (referred to as Audi below) experienced the largest decline in revenue, with a 9.5% year-on-year decrease to 30.939 billion euros.

In terms of sales in the Chinese market, according to the financial report, in the first half of this year, BMW delivered 376,400 vehicles in the Chinese market, a 4.3% year-on-year decrease; Mercedes-Benz saw a 9% year-on-year decrease in sales to 341,500 vehicles in the first half of the year; Audi's deliveries in China decreased by 2.0% year-on-year to 322,000 vehicles.

Regarding the reasons for the simultaneous decline in revenue and sales volume in China, when Time Finance and Economics sent interview questions to BBA, as of the time of publication, Mercedes-Benz and Audi had not yet responded. BMW stated to Time Finance and Economics that in the fiercely competitive Chinese market in the first half of 2024, BMW Group delivered over 370,000 BMW and MINI brand vehicles, achieving such sales performance under such circumstances was not easy.

Decline in Sales

In the first half of 2024, BBA faced pressure both in terms of sales volume and financial performance.

In terms of sales volume, BMW delivered 376,400 vehicles in the Chinese market in the first half of the year, a 4.3% year-on-year decrease. The sales performance of new models and electric models was a major highlight, with BMW stating to Time Finance and Economics: "The all-new BMW 5 Series sold over 10,000 units in June, just 5 months after its launch, indicating that the new 5 Series has smoothly passed the initial sales climb and is entering a phase of stable growth. BMW X5 sold nearly 47,000 units in the first half of the year, maintaining its lead in the same segment market. BMW's pure electric vehicle sales increased by 19% year-on-year."

Mercedes-Benz and Audi also could not escape the decline in sales in the Chinese market. Mercedes-Benz's sales in China decreased by 9% to 341,500 vehicles in the first half of the year; Audi's deliveries in China decreased by 2% to 322,000 vehicles.

Mercedes-Benz stated in its semi-annual report: "The Chinese market has slightly contracted, and the market conditions for the high-end and luxury car market in China remain weak." According to data from the China Passenger Car Association, the cumulative retail sales of luxury cars in China from January to June this year were 1.334 million units, a 5.6% year-on-year decrease. According to Fitch Ratings disclosed in a research report, "Although retail discounts reached a new high of about 23% in June 2024, sales of joint venture and luxury brand internal combustion engine vehicles (ICEVs) in the second quarter still fell sharply by 23%, further exacerbating the weakness in the domestic market."

In terms of revenue, BBA saw a simultaneous decline in revenue in the first half of the year, with BMW recording revenue of 73.558 billion euros, a slight 0.7% year-on-year decrease. BMW stated in the financial report that in the fiercely competitive Chinese market, BMW's pricing strategy last year to some extent mitigated the impact of intensified market competition (on sales) "In China, consumer confidence remains low, pushing sales below expected levels," BMW said.

Mercedes-Benz reported a revenue of 72.616 billion euros in the first half of 2024, down 4% from the same period's 75.757 billion euros. Mercedes-Benz explained that this was due to a slight decrease in unit sales, unfavorable product and market mix, negative impact from net pricing, and adverse currency fluctuations.

Audi experienced the largest decline, with revenue of 30.93 billion euros in the first half, a 9.5% year-on-year decrease.

Even more concerning is the performance of the BBA's profits.

BMW's net profit in the first half of the year was 5.656 billion euros, down 14.6% year-on-year. In addition, both its profit before tax (PBT) and earnings before interest and taxes (EBIT) saw double-digit year-on-year declines. The former was 8.023 billion euros, down 14.2% year-on-year; while EBIT was 7.931 billion euros, down 18.4% year-on-year.

Mercedes-Benz's net profit in the first half of 2024 was 6.087 billion euros, down 20% from 7.652 billion euros in the same period last year; it recorded an EBIT of 7.9 billion euros in the first half, down 25% year-on-year. The Mercedes-Benz Cars division report stated that in a challenging environment, adjusted EBIT significantly decreased, influenced by unfavorable product and market mix, decreased unit sales, and negative net pricing effects.

Audi's operating profit in the first half of the year was 1.982 billion euros, a sharp 42% year-on-year decline. Audi's return on sales (ROS) also decreased by 3.6 percentage points to 6.4% year-on-year. ROS is an important indicator of a company's profitability from sales activities, calculated as the ratio of sales revenue to net profit. A higher ROS value indicates higher net profit and stronger profitability.

Audi stated in its financial report that operating profit was approximately 2 billion euros, with an ROS of 6.4%, both significantly lower than the same period last year. The main reasons for the profit decline were supply constraints for V6 and V8 engines, challenging market conditions, and rising costs of new products. The report also mentioned the decline in performance in the Chinese market, stating, "Audi Group's business in China contributed 338 million euros to financial performance (compared to 457 million euros in the same period last year). The decline is due to various factors, including the fiercely competitive market environment in China." Intense Competition in the Chinese Market

The semi-annual report for 2024 reveals to some extent that the profitability of BBA is declining. And all three luxury car companies mentioned in the semi-annual report have highlighted the intense competition in the Chinese market.

In July of this year, the news of "BMW China will exit the price war" sparked discussions. According to Securities Times on July 19th, "BMW actively announced its withdrawal from the price war, followed by Mercedes-Benz and Audi also indicating their intention to exit the price war."

"We did not announce our withdrawal from the price war, this statement is not true." BMW told Time Finance, "In the second half of the year, BMW will focus on business quality in the Chinese market, supporting dealers to steadily develop."

Yang Jing, the director of corporate ratings for Asia-Pacific at Fitch Ratings, believes that since the fourth quarter of last year, the overall retail discount rate of luxury car brands has been rising, severely squeezing the profit margins of dealers. For luxury car brands, the vicious competition among dealers, declining service quality, and the long-term negative impact on brand value may be more worrying than the short-term profit reduction in China.

"Luxury car brands are at the top of the value chain, and there is still a considerable amount of high-end demand that will not easily switch to Chinese brand new energy vehicles. Therefore, by maintaining prices to stabilize price expectations and brand value, giving up some middle-class consumer market, and maintaining the profitability of high-end product lines and service levels, luxury car brands demonstrate confidence and strength in their brand value." Yang Jing said.

However, Fitch Ratings expects that as new energy vehicle (NEV) manufacturers keep a close eye on BBA customers, mainstream joint venture brands may adopt a wait-and-see attitude towards following this price maintenance action.

Currently, new energy vehicle brands such as Li Auto, Nio, Aito, and Xpeng are vigorously competing with BBA. According to Hongmeng Zhixing, Aito M9 achieved a record high delivery volume in July, delivering 18,047 units, ranking first in the luxury car market with sales over 500,000 RMB.

Li Auto previously stated that it aims to become the top-selling luxury brand in the Chinese market by 2024. According to Li Auto's weekly sales rankings, the gap between Li Auto and BBA is narrowing. The latest issue (July 29th-August 4th) of the luxury brand sales rankings in the Chinese market shows that Mercedes-Benz ranks first with 16,700 units sold; Audi follows closely with 13,500 units; Li Auto has 11,800 units, higher than BMW's 11,400 units.

Regarding future plans in the Chinese market, BMW told Time Finance that at the Chengdu Auto Show later this month, BMW will showcase several mid-term facelift and next-generation models for their domestic debut, to steadily promote business development with strong corporate resilience, more attractive products, and continuously improved service quality.

Mercedes-Benz, on the other hand, is rumored to be slowing down its electrification strategy. According to China Business News, Mercedes-Benz has postponed its electrification process. According to Mercedes-Benz's previous plan, new energy vehicle sales were expected to account for over 50% by 2025. However, at this year's shareholders' meeting, Mercedes-Benz postponed this plan to 2030. Mercedes-Benz CEO Ola Källenius admitted that the company has adjusted its previous targets: no longer planning to fully switch to electric vehicle sales in major markets by 2030, as the popularization speed of Mercedes-Benz's electric vehicles did not meet expectations Time Finance has sent an interview letter to Mercedes-Benz regarding the change in electrification strategy, but has not received a response as of the deadline for this article.

From 2010 to 2020, it was the golden age of the luxury car market in China, with the market size increasing from 300,000 vehicles to 2.52 million vehicles, expanding by more than 8 times. During this period, BBA enjoyed great success, occupying the largest market share. In the era of new energy vehicles, the Chinese new energy vehicle market achieved a penetration rate of over 50% in July, with domestic luxury brands sharing the market share with electrification. In the second half of 2024, how BBA defends its position and counterattacks remains a common topic for them