Buried within BMW's seemingly positive Q1 2024 earnings transcript lies a subtle but significant shift in strategy that's flown under the radar of most analysts. While pronouncements of global market dominance and a steadfast commitment to technology openness took center stage, a closer examination of the numbers reveals a curious disconnect: the declining profitability of BMW's American operations.

This isn't about dwindling sales figures or supply chain woes. BMW, unlike some of its German counterparts, boasts robust supply chains and a commendable product cycle management strategy. This is about a silent erosion of margin, a whisper of doubt in the American market, masked by the roar of their global ambitions.

The most telling evidence lies in the stark contrast between BMW's pricing strategy in the US compared to China. In China, despite facing a cutthroat price war, particularly in the lower segments, BMW has held its ground, maintaining profitability by leveraging local production and emphasizing its strength in the higher end of the market. Walter Mertl, BMW's CFO, proudly highlighted the stability of their joint venture, BBA, and the ability to even increase pricing on models like the 7 Series.

Contrast this with the US, where BMW's pricing strategy seems to have softened. While Mertl stressed maintaining an average revenue of €50,000 per car, the Q1 bridge reveals a negative pricing impact of €300 million compared to the previous year. This softening effect, attributed to a global trend, raises questions about BMW's commitment to maintaining its premium pricing power in the face of increasing competition in the US EV market.

Furthermore, BMW's Financial Services division, a key indicator of customer engagement and brand loyalty, paints a concerning picture. While the division is experiencing a turnaround globally, with new contracts growing by 21.5% in Q1 2024, a deeper dive into regional performance is lacking. Is this growth driven by European and Asian markets, while the US lags behind? The transcript offers no specific insights, leaving a gap in our understanding of BMW's financial footing in the US.

This lack of clarity extends to BMW's inventory buildup. While justified by the upcoming 5 Series launch, how much of this inventory is destined for the US market? Is BMW anticipating a surge in US demand, or are they bracing for a potential slowdown, building a buffer against potential market turbulence?

The transcript highlights another factor that could be contributing to the margin compression in the US: the generous interest subsidies offered in connection with the Inflation Reduction Act (IRA). While well-intentioned, these subsidies could be distorting market dynamics, pushing customers towards financing options and ultimately eroding BMW's profitability.

Adding to this narrative is the significant dividend payout from the Chinese joint venture, BBA, which exceeded its earnings in the previous year. While this windfall boosted BMW's overall cash flow in 2023, the sustainability of such payouts remains uncertain. Is BMW becoming increasingly reliant on its Chinese operations to bolster its financial performance, while its American endeavors falter?

BMW's BEV Sales Growth in China vs. Total Market Growth

The chart below shows BMW's strong BEV sales performance in China, outpacing the overall market growth.

The transcript offers no direct answers to these questions, but the subtle hints are there, urging a closer examination. Is BMW subtly shifting its focus away from the American market, prioritizing its dominance in China and riding the wave of its exceptionally strong performance there?

The hypothesis is this: BMW, while maintaining a facade of global market leadership, is silently recalibrating its strategy, recognizing the challenges and potential limitations of the US market. The company may be pivoting towards a more China-centric approach, leveraging its established presence and robust profitability there to drive future growth.

This shift is not without risks. Over-reliance on the Chinese market exposes BMW to political and economic uncertainties, as highlighted by Oliver Zipse's impassioned warning against potential import tariffs from China.

However, the data suggests that BMW, a company known for its strategic agility, is already hedging its bets, prioritizing markets that offer greater immediate returns and potentially sacrificing long-term growth prospects in the US. This silent shift, masked by optimistic pronouncements, warrants careful consideration by investors and analysts alike. The future of BMW, it seems, may lie less in the land of the free and more in the realm of the dragon.

BMW Key Financial Metrics

Below are some of the key financial metrics of BMW

Market Cap: $64.66 Billion

Revenue (TTM): €155.26 Billion

Net Income (TTM): €11.29 Billion

Dividend Yield: 6.85%

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