MUNICH (March 20): BMW AG warned earnings will fall “well below” last year’s level, and embarked on a 12 billion-euro (US$14 billion) efficiency drive to offset the impact of trade conflicts and unprecedented spending on electric cars.
The shares fell the most since September after the German luxury carmaker said Wednesday that pretax profit is expected to decline by more than 10% this year. BMW is responding by stepping up a savings program with plans to cull models, reduce development times by as much as one third and hold the workforce steady this year.
BMW’s weak outlook is a “troublesome” sign for the sector after the carmaker looked better-placed than competitors with a number of strong new models and the luxury-car market in China holding up, Bernstein analyst Max Warburton wrote in a note. “This warning will inevitably increase worries about weaker names in the sector.”
BMW already flagged a challenging year ahead last week, saying great efforts will be necessary to push through the costly shift to electric and self-driving cars as markets fall and trade concerns mount. The automotive profit margin will be in the range of 6% to 8% this year, below an 8% to 10% long-term target. Chief Financial Officer Nicolas Peter added that guidance could fall even lower if conditions worsen.
BMW 2019 forecast
2018 pretax profit “well below” last year’s level, down at least 10%.
Pretax profit fell 7.9% to 9.82 billion euros.
Automaking profit margin 6%-8%, long-term target remains 8%-10%.
Automaking return on sales declined to 7.2% from 9%.
“Slight” rise in vehicle deliveries Group deliveries rose 1.1%.
“Our industry is witnessing rapid transformation,” Peter said. “A sustained high level of profitability is crucial if we are to continue driving change.”
BMW shares fell as much as 5.9%. The stock was down 4.6% to 72.26 euros as of 11:28 a.m. in Frankfurt. BMW’s muted forecast also dragged lower the shares of luxury rival Daimler AG, which fell as much as 2.4%. Volkswagen AG declined 2.7%.
BMW is particularly hard-hit by trade concerns, with earnings suffering from extra tariffs on vehicles made in Spartanburg, South Carolina, and shipped to China. Concerns over Brexit continue to weigh, and BMW has said it could move production of the Mini city car in Oxford to elsewhere in Europe should the U.K. leave the European Union without a deal. In addition, U.S. President Donald Trump has threatened to slap levies on European-made cars exported to the U.S.
The struggles are adding to challenges from higher spending on new electric cars, while efforts to comply with stricter carbon emissions regulation will also drive up the manufacturing cost. Currency swings an higher raw material prices will have have a medium-to-high three-digit million euro negative impact, BMW said.
New models like the full-size BMW X7 sport utility vehicle and the revamped 3-Series sedan will help boost business in the second half of the year to help deliver growth in all major sales regions, BMW said. The carmaker’s deliveries have dropped 2% through February, as the European market declined for a sixth straight month.
China, BMW’s biggest market, is expected to see “solid” growth this year, head of sales Pieter Nota said.
BMW is unveiling the revamped 1-Series compact late this year and the all-new 2-Series Gran Coupe in early 2020. Further out, the company will eliminate about half of its drivetrain variants from 2021.
Other carmakers are responding to the same stresses. Volkswagen’s Audi brand is scaling back management ranks for savings and faster decision-making, while Mercedes Benz-parent Daimler vowed comprehensive cost-cutting measures last month.
In addition to thinning ranks, carmakers are also looking to each other for savings. BMW and Daimler have pushed aside rivalries to joined forces in sharing and autonomous cars. They’re also studying a deeper cooperation on key components in conventional vehicles, people familiar with the matter said in December.