BMW profit falls 74 per cent as €1.4bn set aside for possible EU fine
Earnings ‘on course’ as first-quarter net income doubles analysts’ forecasts
Operating profits at BMW plunged 78 per cent in the first quarter after the German carmaker was compelled to set aside €1.4bn to cover a possible fine from EU antitrust authorities.
The Munich-based luxury carmaker said the provision cut its operating profit margin by about 7 percentage points. Operating profit was €589m, versus €2.7bn a year ago.
The company’s earnings were otherwise “on course”, said chief executive Harald Krueger.
Revenue in the quarter fell 1 per cent to €22.4bn, a nudge ahead of the €22.3bn expected by analysts. Net income was down 74 per cent to €588m, yet this was more than double the €233m anticipated by analysts. Vehicle deliveries were up 0.1 per cent from a year ago to a record 605,333 units.
“We remain firmly on course and expect business to benefit from tailwinds, especially in the second half of the year, as numerous new models become available,” Mr Krueger said. “At the same time, we are experiencing the impact of high levels of expenditure in numerous areas affecting the entire automotive sector.”
Automotive margins in the three months were negative at minus 1.6 per cent, versus 9.7 per cent a year ago. The group also warned that 2019 margins would be between 4.5 and 6.5 per cent — not the 6-8 per cent margin assumed — because of the provision. Previously BMW had projected missing the 6-8 per cent target by 1 to 1.5 percentage points. Long term it still targets automotive margins in a range of 8-10 per cent.
Last month BMW issued a profit warning after acknowledging it was likely to be fined more than €1bn by EU antitrust authorities, whose “preliminary view” after a two-year probe was that BMW and four other German carmakers had colluded to delay the introduction of clean emissions technology.
BMW said on Tuesday it would contest the allegations, which it views “as an attempt to equate the permissible co-ordination of industry positions regarding the regulatory framework with unlawful cartel agreements”.
Before setting aside that provision, BMW had warned that 2019 profits would be “well below” 2018 levels. In March it announced a €12bn cost-savings plan to offset the need for higher technology costs as it electrifies its fleet and grapples with self-driving innovations.
Despite these challenges BMW’s market share is increasing, albeit in a market seeing a downturn in car sales, bottlenecks resulting from new emissions standards in Europe and rising costs of raw materials and technology investments.
BMW said its research and development budget rose 8.4 per cent from a year ago to €1.4bn.
Following President Trump’s threats of new tariffs on Chinese-made goods, Citi analysts reiterated on Monday that BMW and Daimler, the two biggest exporters of US-made cars to China, were “most exposed” to US-China trade tensions. If Beijing once again raised tariffs on US-made cars from 15 to 40 per cent, it would represent a €500-€600m annual profit headwind for each carmaker, Citi said.