Interest rates

BMW says demand weakens as inflation and interest rates bite

BMW AG says new vehicle orders are receding from high levels as inflation and rising interest rates hit consumers, making the company the first of the major automakers to become more cautious.

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(Bloomberg) – BMW AG says new vehicle orders are receding from high levels as inflation and rising interest rates hit consumers, making the company the first among major automakers to become more careful.

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The Munich-based automaker sees vehicle orders normalizing towards the end of the year, particularly in Europe, it said on Wednesday. Current order books are at an all-time high due to pent-up demand from the continued shortage of semiconductors.

“For new incoming orders, we are seeing a reduction compared to last year,” BMW chief executive Oliver Zipse said in a call with reporters. The decline is most visible in Europe among 1-series and 2-series compact vehicles, while demand for BMW’s lucrative X-series SUVs and 5-series sedans is still strong, he said.

BMW stuck to a forecast for auto manufacturing returns of between 7% and 9% for the year due to strong vehicle prices and model range as well as demand for used cars. The manufacturer also said it would not be able to fully pass on rising material costs with internal savings helping to mitigate the impact.

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The company is sounding alarm bells even though demand for cars has remained high so far amid a deteriorating global economic outlook and record inflation. Mercedes-Benz AG and others have recently raised their expectations for the year while warning that economic risks are mounting.

BMW is the first automaker “to signal caution on demand,” Bernstein analyst Daniel Roeska said in a note. “That implies weakening sentiment today, even as production increases across the sector.”

Shares fell as much as 6.2% in Frankfurt, the most since March 10, and were down 5% at 12:10 p.m.

Gas savings

The automaker is also stepping up preparations for a possible gas shortage in Europe. BMW operates 37 gas-fired facilities that produce heat and power at its factories in Germany and Austria and is considering turning to local utilities instead.

“Moving power generation on this scale is not trivial and will be very expensive,” Zipse said.

He also joined warnings from plastics maker Covestro AG about the impact of a total gas supply shutdown on the entire supplier network.

“It is not our direct suppliers, but the suppliers of our suppliers, those whose production is dependent on process gas” who are at risk, Zipse said. “For them, production will stop very soon if natural gas is completely cut off.”

(Updates with CEO comment in third paragraph)