BMW shares fall sharply after profit warning

BMW has warned its earnings will fall "well below" last year's level, and embarked on a €22 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 per cent this year. BMW is responding by stepping up a savings programme with plans to cull models, reduce development times by as much as one third and hold the workforce steady this year.

"Our industry is witnessing rapid transformation," chief financial officer Nicolas Peter said. "A sustained high level of profitability is crucial if we are to continue driving change."

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 per cent to 8 per cent this year, below an 8 per nt to 10 per cent long-term target. Peter added that guidance could fall even lower if conditions worsen.

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Trade concerns

BMW shares extended losses, dropping as much as 4.6 per cent. The stock was down 3.7 per cent to €72.90 euros as of 10:06 a.m. in Frankfurt. The stock is down 15 per cent in the past year.

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 may move production of the Mini city car in Oxford to elsewhere in Europe should the UK leave the EU without a deal. In addition, US president Donald Trump has threatened to slap levies on European-made cars exported to the US.

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 SUV (reviewed in Motors this week) and the revamped 3-Series saloon 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 per cent through February as the European market declined for a sixth straight month.

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.

Cost cuts

Other carmakers are responding to the same stresses. Volkswagen Group'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. – Bloomberg