BMW Car Unit Posts First Loss in a Decade

(Bloomberg) --

BMW AG's automotive division swung to a loss for the first time in a decade as car prices slumped and a legal provision over alleged collusion ballooned to 1.4 billion euros ($1.6 billion).

Excluding the set-aside, earnings at the carmaker's main unit fell by 42 percent to 1.1 billion euros in the first quarter. Price competition in some markets and spending on new technology cut into profit, the luxury carmaker said Tuesday in a statement.

To deal with the pressures, BMW in March announced a 12 billion-euro savings plan, culling models and cutting development time. While the second half of the year should improve with sales of new 3-Series and X7 sport utility vehicles, trade tensions are on the rise again. Orders for the X7 were exceeding all expectations, Chief Executive Officer Harald Krueger said.

The company is also cooperating with Daimler AG in autonomous driving, and the two companies merged their mobility services earlier this year. Though there has been speculation about further cooperation plans, Krueger poured cold water on hopes of a cross-share holding on Tuesday.

“We're focusing on the current projects, mobility services and autonomous driving, but any sort of cross-share holding I can definitively rule out,” Krueger said in a media call.

BMW will contest the allegations on collusion on cleaner-emission cars by the European Commission with all legal means possible, it said.

New Models

“We expect the first half-year to be slightly weaker overall,” Chief Financial Officer Nicolas Peter said, as model changeovers impact on sales and costs. “We expect the second half-year to benefit from the strong product momentum.”

Group earnings before interest and tax declined 78 percent to 589 million euros, with the result at the “light end” of expectations, Jefferies analyst Philippe Houchois said in a note. Excluding the potential fine, automotive return on sales fell to 5.6 percent compared with 9.7 percent a year ago.

BMW declined 1.3 percent to 73.03 euros at 10:57 a.m. in Frankfurt trading. The stock has gained 3.3 percent this year, compared with an 18 percent rise in the Stoxx 600 Automobiles & Parts Index.

More Tariffs?

U.S. President Donald Trump on Sunday threatened more tariffs on Chinese goods that could prompt retaliatory actions. BMW exports SUVs from its plant in the U.S. to China that are already hit with increased tariffs. The U.S. and China facing off on trade could cost BMW a low three-digit million euro amount this year, Peter said.

BMW caps a mixed earnings season for carmakers. Volkswagen AG's profit excluding special items rose, defying falling sales in China while Daimler, reporting a 16 percent profit decline, warned it would be tougher to meet annual targets.

“As most companies have done, BMW points towards a stronger second half this year,” Evercore ISI analyst Arndt Ellinghorst said in a note. “We remain skeptical regarding this optimism as we don't see much stronger end-markets and we remain worried that renewed” trade tensions “in conjunction with CO2 could darken the horizon.”

BMW reiterated its outlook for the year, expecting earnings before tax to fall “well below” the year-ago level while deliveries will rise slightly. The automotive return on sales is expected to drop to between 4.5 percent and 6.5 percent, from an already lowered target of 6 percent to 8 percent.

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Tara Patel at tpatel2@bloomberg.net, ;Anthony Palazzo at apalazzo@bloomberg.net, Elisabeth Behrmann, Andrew Noël