BMW Pleads for Patience as Mercedes Counterattack Gears Up

(Bloomberg) -- BMW AG is pleading for patience as it invests in beating back Mercedes-Benz, promising a deluge of new models and a future of electric robocars.

While the costs of revamping BMW's aged lineup and developing future technologies are weighing on profits now, the Munich-based carmaker is prioritizing the long-term race to win over a new generation of customers, according to the company's first-quarter financial report on Thursday.

“Short-term gain is not the decisive factor for us: we remain focused on sustainable, profitable growth,” Chief Financial Officer Nicolas Peter said in a statement, noting that spending on new versions will continue to climb this year.

Weighed down by rising expenses, BMW has maintained a cautious approach even after Daimler AG's Mercedes-Benz surged past it in sales last year for the first time in more than a decade. BMW Chief Executive Officer Harald Krueger has overseen a meek revamp of the 5-Series sedan since taking over in 2015, and held off on launching new standalone electric models.

BMW's resolve to fight back became evident in March, when Krueger promised the biggest product offensive in the company's history. The plan includes the X2, a compact sport utility vehicle scheduled for 2018, as well as the full-size X7 SUV. The company's new flagship, the electric self-driving iNext is due out in 2021.

Selling more of the lucrative SUVs and top-of-the line sedans -- alongside the bread-and-butter 5-Series -- is vital as the manufacturer aims to boost profitability and raise funds for the next generation of vehicles.

Strong Start

Blaming spending pressures, BMW stuck to a conservative profit forecast of a “slight” increase in earnings for 2017, while rival Daimler upgraded its target to a “significant” gain.

“Despite this stronger-than-expected start to the year, BMW has opted for a conservative approach,” said Georges Dieng, an analyst at Natixis Securities. “We think there was room for a more upbeat message.”

BMW's profit from automaking rose 6.1 percent in the first quarter to 1.87 billion euros ($2 billion) on the back of climbing sales, the automaker said in the statement.

Research and development costs jumped 35 percent to 1.32 billion euros during the quarter. That hurt the automotive return on sales, which fell to 9 percent from 9.4 percent a year earlier.

While Krueger's been criticized for the tepid redesigns of BMW's existing models, his biggest test will come with the launch of new battery-powered versions. During the first quarter, BMW doubled deliveries of hybrid and electric cars to almost 20,000 vehicles -- more than 3 percent of total sales, with nine different models on offer across all its brands.

Unlike its competitors, BMW has chosen to add electric powertrains to existing models rather than design specific electric cars. Krueger says that approach puts BMW in a good position to react to changes in demand, as consumers to date haven't shown much enthusiasm for the greener rides.

“We continue to chart our own course,” Krueger said in the statement. “Our goal is clear: to be the technology and innovation leader in mobility.”

To contact the reporter on this story: Elisabeth Behrmann in Munich at ebehrmann1@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Dalia Fahmy, Tom Lavell