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BMW warns on profits

September 25, 2018

German premium carmaker BMW has announced that new stricter EU emissions tests for cars as well as global trade tensions would leave revenues and profits short of its full-year forecast.

BMW - Logo an Firmenzentrale in München
Image: picture alliance/dpa/A. Gebert

BMW warned on Tuesday that earnings, margins and profits would fall this year, against earlier expectations for a flat outcome.

The Munich-based company said operating margin in its automotive division was now expected to be "at least 7 percent," rather than in line with the group's target of between 8 percent to 10 percent — a corridor it has met for the past 33 consecutive quarters.

The premium carmaker blamed a number of factors for the fall in margin, including the trade war between the United States and China as well as higher costs to implement new EU emissions standards.

The profit warning rattled shares in German automakers, with BMW down 4 percent on Tuesday, while rival Daimler plunged 2.4 percent and Volkswagen shed about 2 percent. Analysts believe BMW's profit warning will send shockwaves across the industry.

"This will likely weigh not only on BMW's 'safe haven' image, but also increase investor concerns about the auto cycle in general and the political backdrop going into 2019," analysts at Swiss bank UBS, for example, wrote in a note to investors.

WLTP nightmare

One of the reasons for the warning cited by BMW was the industry-wide shift to the new Worldwide Harmonized Light Vehicle Test Procedure (WLTP).

Read more: EU car buyers foot the bill of new emissions test

New test causing bottleneck at VW

WLTP has forced some carmakers to withhold non-conforming models from showrooms, prompting them to discount other models to defend their market share. 

The new test cycle had led to "significant supply distortions in several European markets," BMW noted and unexpectedly "intense competition."

The new regulations came into force this month, and are a result of Volkswagen's long-running diesel emissions scandal in which the world's largest carmaker admitted to cheating emissions tests on millions of vehicles worldwide.

US-China trade war

According to BMW, international trade tensions, notably between the US and China, were also fueling market uncertainty because of higher tariffs for its cars produced in the US and sold to China.

Read more: Are German cars American enough?

Spartanburg in South Carolina is home to BMW's biggest production plant outside Germany, and produced 371,316 vehicles last year, of which 70 percent were exported to China.

But as of July these were hit with 40 percent tariffs, creating a disadvantage against rivals such as Porsche and Audi who ship SUVs from Europe and are hit with 15 percent tariffs.

Read more: German carmakers among the biggest losers in US-China trade row?

Apart from trade issues, BMW also highlighted "increased goodwill and warranty measures" weighing on its performance.

The group was forced to recall some 324,000 diesel-powered cars in August, citing risk of a fire in the motor, as well as around 8,000 vehicles fitted with software that reduced emissions during regulatory tests.

As a result of all of this, BMW now forecast revenues "slightly lower" than last year and group-wide profit before tax to show a "moderate decrease" year-on-year, rather than staying around last year's level of €10.7 billion ($12.6 billion).

Carmakers on edge over possible US tariffs

uhe/jd (Reuters, dpa, AFP)