Profit tumbles in Q3 for BMW on weak demands from China, others

 

By Marco Engemann and Roland Losch, dpa

 

 BAVARIA – Technical problems with braking systems and weak demand in China saw third quarter profits fall 84% on the year to €476 million ($512 million) at German carmaker BMW in results published on Wednesday.

Reduced unit sales led to a fall in turnover to €32.4 billion, down 16% on the year. The problems led BMW to cut its forecast in September.

Pointing to the difficulties, board chairman Oliver Zipse said: “After the extraordinary challenges in the third quarter, we are looking ahead: In the fourth quarter, we are back on track for stronger earnings in order to achieve our annual targets, despite planned high upfront expenditures.”

Costs caused by technical measures and a halt to deliveries resulting from problems with brakes provided by German supplier Continental hit profitability in BMW’s core business.

The profit margin in the car unit before interest and taxes dived 7.5 percentage points to 2.3%, badly impacted by declining sales in China, previously a high-growth market. The decline was worse than that anticipated by analysts.

BMW was forced to recall 1.2 million cars and hold back delivery of a further 320,000 new cars.

Chief financial officer Walter Mertl said the company had made “the necessary provisions for warranty obligations in the high three-digit million-euro range.”

He added that good progress had been made with implementing technical measures worldwide, which were expected to be completed for most cars held in stock by the end of this year.

“So in Q4 we will see volumes well above Q3 and an improved product mix,” he added.

BMW sales in China fell by 30%, with the result that the company is selling just a quarter of its cars there. At least half of the decline could be attributed to the halt to deliveries caused by the brake problem, Mertl said.

But the company also noted “ongoing muted demand in China” with prices under pressure and fluctuating strongly. This was expected to continue to the end of the year, he said, and BMW was supporting dealers with discounts and liquidity.

Referring to fears of tariffs imposed by the United States on cars imported from Europe, Zipse noted that BMW’s second largest assembly plant globally was its SUV factory in South Carolina and that most of the BMWs sold in the US were also made there.

Zipse criticized European Union plans to impose tariffs on Chinese-made electric cars. “Import duties do not make European manufacturers any more competitive,” he said. “On the contrary, they undermine the business models of companies that operate globally,” he added.

BMW’s sales overall in the third quarter fell 13% to 541,000 units, with turnover falling 16% to €32.4 billion and operating profit by 61% to €1.7 billion.

For the year as a whole, BMW is expecting a slight decline in unit sales from the 2.55 million cars sold last year. The profit margin is expected to fall to between 6% and 7%, from the 9.8% posted last year.

Pre-tax profits are expected to decline substantially from the €17.1 billion posted last year. By contrast, with other European carmakers, electric cars continue to be a growth driver at BMW, which now has 15 electric models in its range and sells 17% of its cars as battery electric vehicles (BEV).

“By 2030, all-electric vehicles will account for more than 50% of our total sales. The rollout of our fully-electric Neue Klasse (New Class) will play an important part in this,” Zipse said.

The new Debrecen assembly plant in Hungary had started pre-series production of the SUV in this class, and this would be followed sporty sedan from the main plant in Munich, he said.