BMW Q3 profit falls 27% amid U.S.-China trade tensions, Europe price war

November 7, 2018 09:25 CET

FRANKFURT — BMW reported a 27 percent drop in third-quarter operating profit to 1.75 billion euros ($2 billion) amid currency headwinds, trade tensions and higher research and development expenses.

Earnings were hit by higher raw material prices, currency effects, higher provisions for goodwill and warranty measures, tariffs between China and the U.S. and a price war in Europe, BMW said in a statement on Wednesday.

Despite a slight rise in vehicle deliveries, operating return on sales for the automotive division narrowed to 4.4 percent from 8.6 percent a year earlier, well below its targeted range of 8 percent to 10 percent, BMW said.

“Along with the rest of the industry, we are increasingly confronted with adverse external factors, the negative impact of which cannot be fully offset,” said Chief Financial Officer Nicolas Peter.

More savings

BMW will seek additional savings to bring down costs to offset higher spending on the launch of new electric and conventional cars this year, Peter said.

“On the cost side, we began implementing countermeasures early on. In addition to prioritizing more quickly, we also decided on a number of short and long-term measures in recent months,” Peter said. “Additional measures will be needed to support our profitability targets,” he said.

Last month BMW warned its pretax profit would fall this year, against earlier expectations for a flat outcome. The company cut its profit margin guidance for cars, blaming intense price competition.

Price war

Automakers are battling on multiple fronts. Already under pressure from record investment demands for electrification, the past few months have seen trade tensions intensify and new emissions testing rules in the EU distort the market.

While BMW was ready to meet the new Worldwide harmonized Light vehicle Test standard (WLTP) regime in Europe, the likes of Volkswagen rushed to register cars before a September deadline, leading to a glut of vehicles, supply distortions and heavy discounting in some markets.

During the quarter, BMW also had to set aside more funds to deal with recalls of fire-prone vehicles and other warranty claims. A global campaign to exchange certain engine modules contributed to a boost in provisions by 679 million euros ($777 million).

The automaker said trade tensions, higher provisions and pricing pressure will persist into year-end.

“BMW reported a difficult quarter very similar to its German premium peers,” Evercore ISI analyst Arndt Ellinghorst said in a note to investors.

Given BMW has had fewer issues meeting the new European Union emissions testing regime than its competitors, “we would have expected the company to show some relative strength – which it hasn’t,” Ellinghorst said.

Bloomberg contributed to this report

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