BMW cut its output prediction and warned of a highly variable second half on Wednesday, citing energy supplies in Europe and chip supply globally as two critical elements in the manufacturer meeting full-year earnings forecasts.

New inbound orders were beginning to diminish, but order books will stay full for the next three months, according to CEO Oliver Zipse.

Finance chief Nicolas Peter stated that demand for electric vehicles was particularly strong. The luxury manufacturer was on track to fulfil its objective of doubling all-electric car sales by the end of the year, and he predicted total sales growth of 5% to 10% in the second half, boosted by strong Asian markets.

Nonetheless, BMW anticipates that year-end deliveries will fall short of last year’s record highs of 2.52 million. Sanctions against Russia, interruptions in gas delivery, and the prospect of the Ukraine crisis spreading were not considered into their forecast.

“The crucial factor will be how the supply situation develops – not just for semiconductors, but also energy supplies in Europe,” Zipse said.

BMW stock was down 4.9 per cent.

Stifel analyst Daniel Schwarz called its prognosis “quite dismal,” while Berstein Research underlined how BMW was the first carmaker to express concern about demand.

Germany and other European Union countries have implemented emergency preparations to reduce gas use, fearing that Russia could limit or stop delivering gas to Europe in reaction to Western sanctions over its invasion of Ukraine. 

BMW uses around 3,500 gigatonnes of energy per year in Germany and Austria, with natural gas accounting for three-quarters of that total.

According to Zipse, the carmaker might buy electricity from abroad to replace the approximately 500 gigatonnes of electricity produced annually by gas-powered combined heat and power facilities.

Replacing gas in manufacturing processes would be more difficult.

“Partial compensation is possible… even if it works, it will certainly be expensive. There is no way we will be able to maintain the costs per kilowatt hour,” he added.

According to a study released on Wednesday by Germany’s Ifo institute, the economic situation of German automakers began to deteriorate in July, with order backlogs reducing and price expectations plunging.

BMW was more pessimistic than competitor Mercedes-Benz (MBGn.DE), which boosted its profitability forecast for the year last week after profits and revenues increased in the second quarter despite dropping unit sales. 

Despite expanding revenues, the Munich-based automaker’s profitability plummeted 3 per cent in the second quarter to 3.4 billion euros ($3.46 billion), exceeding a 3.13 billion euro projection in a Refinitiv survey of eight experts.

The consolidation of its China joint venture BMW Brilliance Automotive increased revenues in the first half but reduced earnings in the second quarter, according to BMW, which reported an automotive margin of 8.2 percent, down from 15.8 per cent last year.

In total, the revaluation of Chinese joint venture shares increased earnings before taxes by 7.7 billion euros in the first half.

(Adapted from USNews.com)