AutoBeta(AutoBeta.net)09/05 Report--

Profit margins for both BMW and Mercedes-Benz shrank in the second quarter, according to a report from overseas media. It is reported that BMW's profit margin before interest and tax shrank to 2.8% in the first half of the year, while Mercedes-Benz's return on sales was 1.4%.

Volkswagen Group's core Volkswagen passenger car brand and its Czech brand Skoda posted second-quarter returns of 5.2% and 8.1%, respectively. The PSA group outperformed Skoda because French carmakers adjusted profit margins of 8.7 per cent. It also means that PSA is much more profitable than brands such as Mercedes-Benz, BMW and Volkswagen.

As we all know, BMW and Mercedes-Benz, as first-tier luxury brands, far exceed the PSA brand in popularity (logo Citroen). In the past, German luxury brands such as BMW and Daimler, which were supposed to have sizeable profit margins in the second quarter, have all shrunk sharply this year, even falling short of the profit margins of ordinary brands in the same period.

In the first half of 2019, the BMW brand had a profit margin of just 2.8 per cent before interest and tax, while Mercedes-Benz's margin had fallen to 1.4 per cent, a far cry from its expected profit margin target of 8 per cent.

Some professional analysts said that there are two main reasons for this phenomenon. The first is that the changes in China's auto market are also the main factors leading to the reduction of EBIT profits of luxury brands such as Mercedes-Benz and BMW; the second is that a large amount of research and development funds have been invested in new energy vehicles and self-driving areas.

Today's Chinese market began to decline last year. The German luxury brands are most affected by the shrinking Chinese market, which is now the biggest market and source of revenue for these brands.

Unlike Mercedes-Benz and BMW brands, the volume of PSA in the Chinese market has been much lower than before, and the Chinese market is not the most important market for PSA, so the phased recession of the Chinese market has not had much impact on PSA.

Second, the current situation of BMW and Daimler is not because of poor management, but also because of high investment in future travel technology. The high R & D investment will also bring a huge financial burden to the enterprise. In the first half of this year, Daimler's investment in research and development accounted for 5.8% of its revenue. BMW has a similar proportion of investment, spending 5.9% of its revenue on research and development in the first half of the year.

In addition, Audi, the luxury car brand owned by Volkswagen, has been deeply influenced by the new emission testing rules WLTP in the past few months, but Audi's profit margins are much better than those of direct competitors BMW and Mercedes-Benz, reaching 8 per cent.

Over the past decade, BMW, Mercedes-Benz and other German brands have seen the Chinese market as the biggest strategic direction, and before the Chinese market recovers, German brands continue to pay the price for their previous great success in the Chinese market.

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