• Wednesday, June 29, 2022

Business

BMW second quarter profits dented by electric vehicle investment

Net profit at BMW fell 28.7 per cent compared with a year earlier in the April-June period to €1.5 billion, below the consensus of forecasts of analysts surveyed by Factset (Photo: Johannes Simon/Getty Images).

By: Radhakrishna N S

GERMAN high-end car maker BMW on Thursday (1) reported slumping second-quarter profits, with pricey investment in electric cars sapping the bottom line, but it remained confident of hitting its financial targets.

Net profit at BMW fell 28.7 per cent compared with a year earlier in the April-June period to €1.5 billion, below the consensus of forecasts of analysts surveyed by Factset.

Chief executive Harald Krueger said the Munich-based group was investing in the development of all-electric, hybrid and fuel cell vehicles, as well as upgrading traditional internal combustion engines.

BMW reported increased demand for its i3 compact car and pointed to five all-electric models slated for release over the coming two years.

An all-electric variant of the Mini is set to begin rolling off its Oxford, UK production line in November.

Finance director Nicolas Peter pointed in a telephone conference to “high capital expenditure and upfront investments” which amounted to €1.4bn over the three months.

Meanwhile, “the increasingly challenging market environment and sustained intense competition dampened business development,” Peter added, while costs for raw materials and for meeting European carbon emissions targets grew.

Sales increased by 2.9 per cent, to €25.7bn, but operating, or underlying profit fell 28.4 per cent, to €2bn.

BMW highlighted that it had managed to increase unit sales in the first half, climbing 0.8 per cent to more than 1.2 million units, pushing back against a global auto market predicted to contract over 2019.

“We are growing in a declining and highly competitive world car market,” CEO Krueger said.

Krueger is set to cede his post this month after coming in for criticism over BMW’s slow progress on electrification.

Looking ahead to the full year, the firm confirmed its outlook for a “slight increase in the number of deliveries”.

Profit margins will be slashed in part by a provision of €1.4bn BMW set aside for an antitrust probe under way at the European Commission which contributed to shrinking the bottom line by half over the first six months.

Brussels in April accused the company of agreeing with Volkswagen and Daimler not to compete on emissions-reduction technology.

BMW expects an operating margin of between 4.5 and 6.5 per cent this year down from 10.1 per cent in 2018.

Investors nevertheless appeared encouraged as the group reported making progress on profitability.

The closely-watched operating margin in its automotive business reached 6.5 per cent in the second quarter, lower than the 8.6 per cent seen a year before, but up 0.9 points compared with the first three months of 2019.

Bosses are looking to secure still higher margins over the coming years by trimming €12bn of costs, partly by slimming down the product range and boosting efficiency.

“We continue to activate all levers at our disposal to secure our profitability,” finance chief Peter said.

(AFP)

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