Car sector hit by BMW profit warning on trade war

BMW warned on Tuesday that 2018 earnings, margins and profits would all be lower than previously thought, as the German carmaker battles trade headwinds and rising costs.

The problems are severe enough that the Munich-based maker of luxury cars said it now risks missing its target of 8-10 per cent operating margins in its automotive sector for the first time in almost a decade.

The news hit shares in BMW, which fell more than 4 per cent, but also resounded across the sector, with Daimler shares down 2.4 per cent and Volkswagen down 2 per cent.

UBS analysts forecast the profit warning would send "shockwaves" across the industry.

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“This will likely weigh not only on BMW’s ‘safe haven’ image [among carmakers], but also increase investor concerns about the auto cycle in general and the political backdrop going into 2019,” they wrote.

BMW blamed a number of factors, including the trade spat between China, the world’s biggest car market, and the US, which is home to BMW’s biggest production plant. It cited “

continuing international trade conflicts [that] are aggravating the market situation and feeding uncertainty”.

Margin corridor

Margins for earnings before interest and tax in the automotive segment are now expected to slip from 8.9 per cent in 2017 to “at least 7 per cent”, meaning BMW could miss the 8-10 per cent margin corridor it has met for 33 consecutive quarters since early 2010.

Last year BMW's plant in Spartanburg, South Carolina, produced 371,316 vehicles and exported 70 per cent of them. China was the number one destination, but as of July these were hit with 40 per cent tariffs, creating a disadvantage against rivals such as Porsche and Audi who ship SUVs from Europe and are hit with 15 per cent tariffs.

BMW also blamed higher costs to implement new emissions standards, known as the worldwide harmonised light vehicle test procedure, which has led to “significant supply distortions in several European markets”.

Automotive revenues are now forecast to be “slightly below” the €88.6 billion it recorded in 2017, versus a prior forecast for a slight increase.

Pre-tax profit is also expected to decrease moderately from the €10.66 billion it achieved last year, versus an earlier projection to meet 2017 levels. – Copyright The Financial Times Limited 2018