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January 20, 2011

ANALYSIS: BMW gets China market lift

BMW Group sold 1.46m units in 2010 and the growing contribution of Chinese markets (including Hong Kong and Taiwan, as well as mainland China) is becoming a major contributor to profitability, according to an analyst who spoke to just-auto.

By David Leggett

BMW Group sold 1.46m units in 2010 and the growing contribution of Chinese markets (including Hong Kong and Taiwan, as well as mainland China) is becoming a major contributor to profitability, according to an analyst who spoke to just-auto.

BMW sales growth last year in the Chinese markets included a 62.0% increase in Hong Kong and Taiwan to a combined 13,600 units and an 86.7% increase in mainland China to 169,000 units.

In 2010, mainland China became BMW’s third largest market (absorbing 11.6% of group retail sales), after Germany (18.3%) and the US (18.2%) and has become the largest market for the 7-Series, the X6 and the 5-Series (a long-wheelbase version just for China was launched in September) and the second largest market for the X5, the X3 and the 3-Series.

“If you look at the volume growth and the model mix, we believe that the Chinese markets have become BMW’s most profitable markets,” says Creative Global Investments analyst Sabine Blümel.

Blümel expects BMW Group to post a 2010 EBIT of EUR4.79bn, with EUR 4.14bn for the Automobile division. Revenue is projected to be up by 23% to almost EUR54bn.

She is also upbeat on BMW prospects for this year and forecasts an 8.5% increase in unit sales for the Automobile division in 2011 to 1.59m which will generate a projected 11% increase in EBIT to EUR 4.62bn. Sales are projected to rise to 1.76m units in 2012 when BMW car sales in mainland China are forecast to top 250,000 units with another 20,000 sales in Hong Kong and Taiwan.

“BMW is benefiting from the confluence of a global recovery to premium brands, accelerating model momentum and booming sales in China,” she says. “And we believe that China will continue to be a main earnings driver, with annual sales increases of more than 20%, despite the recently announced restriction of new cars in Beijing.”

“Another positive for BMW in China is that the lion’s share of sales is imports that tend to be considerably more profitable than those produced by local joint ventures,” she added.

Besides strong growth in East Asia, Blümel also highlights efforts by BMW to lower costs in new model development. She believes that BMW’s modular strategy of car development and production (called Baukasten) is resulting in new models having a considerable cost advantage versus their predecessors. Blümel estimates that it can raise the commonality vertically across different models to 65% and that it has significantly lowered cost on the 5-Series.

Recently introduced models include the X1, 5-Series GT that had both been launched in October 2009 and the new version of the 5-Series, of which the saloon version was launched in Europe at the end of March, in the US in June and is now globally available.

As well as a new X3 launched late last year, BMW plans a new 1-Series and 6-Series during 2011 before launching a new 3-Series in early 2012. According to the model introduction schedule, BMW is planning to renew 60% of its model portfolio between 2008 and 2012, reducing the average age of the portfolio from 3.3 years in 2008 to 2.6 years by 2012.

See also: DETROIT: BMW Group aims for over 1.5m sales in 2011

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