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The global semiconductor shortage has been a significant problem for industries that rely on electronic components to assemble their products. The automotive industry is no exception. Semiconductors are essential to the increasing amount of technology that goes into modern automobiles. The most obvious semiconductor-reliant component in a vehicle is the ECU, but there are plenty of other sensors and parts that require silicon chips as well.

The semiconductor shortage has caused some automakers to temporarily halt production, close plants, or even omit certain features from vehicles. The situation has gotten so severe that President Biden and his administration are looking into the problem. It hasn’t been easy for any car manufacturer, but some are dealing with it better than others. Despite some setbacks with other brands in the BMW group, the marquee brand, BMW AG, is optimistic about revenue.

BMW increases annual profit forecast in the face of semiconductor shortage

BWM is so confident in their current sales that they are increasing their profit forecast in the face of the global semiconductor shortage
BMW 7 Series | BMW

Reuters has reported that BMW AG has lifted its annual profit margin forecast to a range of 9.5% to 10.5%, whereas before, the forecast range was 7% to 9%. Why can BMW AG predict a jump in profit margin during a semiconductor shortage that is hindering production? Well, one of the side-effects of the shortage is that new and used vehicle prices have jumped. The price increase on used cars and new vehicles outweighs the supply issues the industry is currently suffering due to the semiconductor shortage.

“Whilst the semiconductor supply restrictions are expected to further impact production and deliveries to customers in the coming months, BMW AG 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 company said in a statement.

In effect, the decrease in supply and the increase in demand has caused vehicle price inflation so high that it is offsetting losses that BMW would otherwise have from production issues.

This statement caused BMW shares to rise 2% on the Frankfurt stock exchange.

BMW isn’t the only automaker thriving through the chip shortage

An aerial view of Tesla Shanghai Gigafactory on March 29, 2021 in Shanghai, China. Tesla Shanghai Gigafactory is reportedly producing vehicles at a rate of about 450,000 cars per year despite the global chip shortage.
Tesla Shanghai Gigafactory | Xiaolu Chu/Getty Images

Despite the global semiconductor shortage, BMW is in an advantageous position to increase profit expectations. However, other automakers have performed well in the current climate.

Tesla has performed exceptionally well throughout this chip shortage saga. The Tesla Motors Shanghai plant, which builds Tesla Model 3 sedans and Tesla Model Y SUVs, will have produced over 300,000 vehicles by the end of September 2021. Tesla says they were able to keep their production consistent despite the semiconductor shortage by switching to a different supplier before the shortage hit. They also compensated by updating the firmware of their components to work with other microcontrollers, which made them less dependent on the specific semiconductors that are in short supply.

Hyundai is another automaker that predicted the shortage and adjusted accordingly. As a result, the Korean brand saw a 56% jump in sales in May 2021 over the previous year. According to the Reuters report, Daimler is also expecting higher profits for Mercedes-Benz due to vehicle price inflation due to the semiconductor shortage.

While new and used car price inflation may be good news for automakers and investors, it is currently bad news for consumers looking to purchase a vehicle for a fair price.

For what it’s worth, Elon Musk predicts that the instability due to the semiconductor shortage will end by 2022.


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