BMW Sees Profit Margin in China Falling image

A BMW executive said the automaker expects its profit margin in China to slowly and continuously drop in the following years, due to increasing challenges in the world’s largest market for luxury vehicles.

Karsten Engel, president and chief executive of BMW’s China region, told reporters that he predicts profit margin to drop between 1% and 2% annually, as customers begin to turn to smaller premium vehicles. According to Lin Huaibin, an analyst at research firm HIS, net profit margin in China for premium automakers, such as BMW, Audi and Mercedes, usually ranges between 15% and 20%.

“The Chinese margins simply have to come down—it is the law of gravity,” said Bernstein Research auto analyst Max Warburton. “Margins for everyone have been supernormal and remain hugely elevated. We’re now seeing Chinese buyers sober up and buy smaller engines and high-end consumption slow right down.”

Luxury automakers’ outsize profits have been maintained by Chinese customers choosing bigger and better-equipped vehicles. Karsten Engel said that such a decrease in China was expected as the market has become a “normal” large one, similar to the US.

“It is not a problem—it is in our plan,” he said on the sidelines of the China launch of the BMW 3-series GT in the eastern Chinese city of Hangzhou. “The days of breakneck growth are over,” he added.