BMW surprised investors with news it raised its profit forecast for 2021 to between 9.5% and 10.5% from its previous expectation of a 7 to 9% target, saying improved sales of its high-margin vehicles more than compensated for any semiconductor supply problems.

“BMW confirms that the company is well on track to deliver solid earnings for the second half this year and more importantly for 2022,” said Bernstein Research analyst Arndt Ellinghorst in a research note.

BMW made the announcement in a statement after markets closed Thursday.

“BMW increases the guidance corridor for the EBIT (earnings before interest and tax) margin of the Automotive Segment from between 7% and 9% to between 9.5% and 10.5% for the financial year 2021. Additionally, the guidance corridor for the Return on Equity for the Financial Services Segment is revised from between 17% and 20% to between 20% and 23%,” the company said in a statement. 

“Whilst the semiconductor supply restrictions are expected to further impact production and deliveries to customers in the coming months, BMW expects that the continuing positive pricing effects for both new and pre-owned vehicles will overcompensate these negative sales volume effects in the current financial year,” the statement said.

Back in August, BMW raised its profit outlook to between 7% and 9% compared with the previous 6% to 8% forecast. It said then its bottom line outlook  was strong, but investors worried about its determination to pursue an electric vehicle policy which also leaves room for traditional internal combustion engines (ICE) and possibly fuel cells too.

BMW’s main competitors have designed special and separate designs for their electric vehicles, while BMW has tried to combine them with ICE propulsion.  

BMW shares opened barely changed in Europe at €82.23, off 0.6%, in line with the Auto Stoxx Europe 600 index which was down 0.7%

Analysts said high-margin premium brands are in demand especially in the U.S. but a negative is lack of supply.

“Car companies are getting a big bottom-line lift on recovering vehicle markets and high margins on sales – especially in North America, but also Europe and China. Company cost bases have also been contained through the pandemic, much higher volumes sold this year have quickly inflated revenues and operating profits. High-margin premium brands are doing particularly well – like BMW and Mercedes-Benz - and looking around the world, new car transaction prices are currently extremely high in the U.S. It’s a very good time to be selling new cars and trucks there – if you can supply them to market,” said David Leggett, Automotive Analyst at GlobalData, commenting on BMW’s outlook.

But there are obstacles ahead, as costs accelerate, supply chains remain vulnerable and big spending for the electric revolution is required.

“It is a double-edged sword in many ways. There are tougher times ahead for the industry though, with some uncertainty over transaction prices and demand as the global economic rebound slows. Automotive company margins will also start to be squeezed by higher costs, particularly investment in electrified vehicles, as well as the effects of supply chain disruptions,” Leggett said

The post-coronavirus surge is largely complete, and global demand is weakening.

“The big swing to demand recovery from last year’s extremely low base has now largely completed its initial surge and we see a slightly declining global automotive market in the second half of this year,” according to Leggett.

GlobalData has downgraded its world light vehicle sales forecast for the year to 81.7 million, an 8% increase on pandemic-ravaged 2020 but still well below pre-pandemic markets of over 90 million a year.

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