BMW earnings hit by EU legal and investment costs

BMW’s automotive car division swung to a loss for the first time in a decade as car prices slumped and a legal provision over alleged collusion ballooned to €1.4bn.

Excluding the set-aside, earnings at the carmaker’s main unit fell by 42% to €1.1bn in the first quarter. Price competition in some markets and spending on new technology cut into profit, said the carmaker.

To deal with the pressures, BMW in March announced a €12bn savings plan, culling models and cutting development time. While the second half of the year should improve with sales of new 3 Series and X7 sport utility vehicles, trade tensions are on the rise again. Orders for the X7 were exceeding all expectations, said chief executive Harald Krueger.

The company is also co-operating with Daimler in autonomous driving, and the two companies merged their mobility services earlier this year.

Mr Krueger said:

We’re focusing on the current projects, mobility services, and autonomous driving, but any sort of cross-shareholding I can definitively rule out.

BMW will contest claims on collusion on cleaner-emission cars by the European Commission with all legal means possible, it said.

“We expect the first half-year to be slightly weaker overall,” said chief financial officer Nicolas Peter, as model changeovers impact on sales and costs.

“We expect the second half-year to benefit from the strong product momentum.”

Group earnings before interest and tax declined 78% to €589m, with the result at the “light end” of expectations, said Jefferies analyst Philippe Houchois.

Excluding the potential fine, automotive return on sales fell to 5.6% compared with 9.7% a year ago.

US President Donald Trump has threatened more tariffs on Chinese goods that could prompt retaliatory actions. BMW exports SUVs from its US plant China that are already hit with increased tariffs. The US and China facing off on trade could cost BMW a low three-digit million euro amount this year, said Mr Peter.

BMW caps a mixed earnings season for carmakers. Volkswagen’s profit excluding special items rose, defying falling sales in China, while Daimler, reporting a 16% profit decline, warned it would be tougher to meet annual targets.

“As most companies have done, BMW points towards a stronger second half this year,” said Evercore ISI analyst Arndt Ellinghorst.

“We remain sceptical regarding this optimism as we don’t see much stronger end-markets and we remain worried that renewed” trade tensions “in conjunction with CO2 could darken the horizon”.

Bloomberg

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