Audi’s race to catch up with German rival BMW is taking its toll on its profit margin, although the carmaker delivered higher underlying earnings on sales of its luxury saloons and sport-utility vehicles.

Audi, the profit engine of Europe's largest automaker Volkswagen, said on Monday first-quarter operating profit rose 8.2 per cent to €1.42 billion, fuelled by growing demand for the A6 saloon and Q3 sport-utility vehicle.

But persistent spending on models, technology and foreign expansion is squeezing margins at a time when premium carmakers are fighting to attract buyers amid slowing demand in emerging markets.

Audi’s operating margin slipped to 9.7 per cent from 10.1 per cent a year earlier, the carmaker said, reaffirming its 8-10 per cent target range.

"Despite ongoing high investment, we are systematically pursuing our ambitious profitability targets," finance chief Axel Strotbek said in an emailed statement.

The brand, which eclipsed rival Mercedes-Benz in 2011 as the world's second-largest maker of luxury cars by sales, plans to expand its lineup to 60 models by 2020 from 52 now, and is investing more than €1 billion in new factories in Mexico and Brazil.

Daimler said last week the quarterly return on sales from ongoing business at Mercedes Benz Cars jumped to 9.2 per cent from 7 per cent a year ago, citing strong demand for a raft of new models, including the revamped C-Class saloon.

Audi stuck to its guidance for higher revenue and a “significant” gain in auto sales this year despite challenging developments in world economies and foreign exchange markets.

Market leader BMW will publish first-quarter results on May 6th. Audi’s parent VW posted higher-than-expected earnings on cost reductions and Europe’s strengthening auto recovery. – Reuters