BMW's net profit declines by 3% in 2025, with tariff pressures weighing down profit margins

Investing.com - BMW (ETR:BMWG) reports a full-year net profit for 2025 of €7.45 billion, down 3%, despite maintaining stable group profit margins and proposing to keep dividend payout ratios unchanged. However, tariff pressures have eroded profit margins in its core automotive business.

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The Munich-based automaker announced on Thursday that its pre-tax profit fell 6.7% to €10.24 billion, below last year’s €10.97 billion, but its pre-tax profit margin remained at 7.7%.

Revenue declined 6.3% from €142.38 billion in 2024 to €133.45 billion, a 3.9% decrease after currency adjustments.

The automotive segment faced the greatest pressure. Its EBIT dropped 20.7% to €6.26 billion, with EBIT margin falling from 6.3% to 5.3%, at the lower end of BMW’s 5-7% target range. The company stated that tariffs alone reduced the 2025 profit margin by about 1.5 percentage points.

Free cash flow from automotive operations decreased 33% to €3.24 billion, below last year’s €4.85 billion, as reduced operating cash inflows partially offset lower capital expenditures.

“Our disciplined proactive cost management strengthened our performance in 2025,” said Walter Mertl, Board Member responsible for Finance.

“Cost reductions totaling €2.5 billion improved our profitability. We will continue to systematically reduce costs this year as planned.”

BMW cut R&D spending by 8.4% to €8.32 billion, with R&D as a percentage of revenue decreasing from 6.4% to 6.2%. Capital expenditures fell 20.1% to €7.24 billion, with a capex ratio of 5.4%. Selling and administrative expenses declined 6.1% to €10.61 billion.

Group vehicle deliveries increased 0.5% to 2.46 million units. Sales in China declined 12.5%, offset by growth of 7.3% in Europe and 5.6% in the Americas.

The MINI brand saw the strongest growth, up 17.7% to 288,278 units. BMW brand deliveries decreased 1.4% to 2.17 million. Rolls-Royce deliveries slightly declined 0.8% to 5,664 units.

Pure electric vehicle sales grew 3.6% to 442,056 units, accounting for 17.9% of the group’s total sales. Including plug-in hybrids, total electric vehicle deliveries reached 642,071 units, representing a quarter of all vehicles sold.

The financial services segment posted a pre-tax profit of €2.4 billion, down 5.4% from €2.54 billion last year, impacted by reduced leasing and repurchase sales revenue and last year’s tax payments. New business volume increased 2% to €65.82 billion. Penetration rate rose from 42.6% to 46.6%.

The board proposed a dividend of €4.40 per common share and €4.42 per preferred share, up from €4.30 and €4.32 respectively last year. The payout ratio remained at 36.6%, at the upper end of its 30-40% target range. The board also proposed converting all preferred shares to common shares on a 1:1 basis without additional payment, subject to shareholder approval at the May 13 annual general meeting.

BMW has completed €750 million of its authorized €2 billion share buyback program, which will continue until April 2027.

The outlook for 2026 is expected to worsen further. BMW indicated that tariffs will reduce automotive EBIT margins by another 1.25 percentage points.

Combined with unfavorable currency effects, raw material costs, rising depreciation, lower capitalization rates, a decline in the used car market, and pricing pressures in China during the first half, the company forecasts automotive EBIT margins of 4-6%, with a moderate decline in group pre-tax profit.

“In a challenging environment, we do not need to change course but can stay the course and continue to systematically implement our strategy,” said Oliver Zipse, Chairman of the Board.

BMW expects automotive free cash flow to exceed €4.5 billion in 2026. Return on equity in the financial services segment is projected to be between 13% and 16%.

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