BMW second-quarter profit falls 6% on higher spending, currency headwinds

MUNICH — BMW’s second-quarter profit fell 6.3 percent as higher spending to develop electric and autonomous cars and currency headwinds weighed on earnings.

Earnings before interest and taxes were 2.75 billion euros ($3.2 billion), BMW said Thursday in a statement.

BMW said its automotive EBIT margin narrowed to 8.6 percent from 10.1 percent in the year-earlier period, even as vehicle deliveries rose 0.7 percent during the same period.

Adjusted for comparability, BMW’s automotive margin came in at 9.3 percent, which was higher than the 9.2 percent recorded by Audi and the 9.6 percent for Daimler’s Mercedes-Benz, analysts Evercore ISI said.

BMW brushed off new WLTP anti-pollution rules and global trade tensions which caused rival Daimler to warn on profits

BMW said it has largely completed converting its fleet to the new Worldwide Harmonized Light Duty Vehicles Test Procedure (WLTP). Other automakers including Volkswagen and Daimler have warned the new standard’s introduction could dent margins.

“With the exception of just a few model variants, we have already switched several hundred models, well ahead of the September deadline,” CEO Harald Krueger said. “Since we integrated the WLTP switch into our production and sales planning early, we are able to offer our fleet customers the same wide range of products as usual,” he said.

BMW also said increased efficiency measures had helped offset a triple-digit-million headwind from foreign exchange rates and raw materials.

The company affirmed its 2018 targets to achieve slightly higher deliveries and revenues in the automotive segment and achieve a group profit before taxes at the previous year’s level.

China tariffs

BMW is grappling with shifts in global trade barriers. After China said it would lower import tariffs from July 1, consumers held back on buying cars, demanding price reductions. BMW’s vehicle sales in China rose 2.2 percent in the first half, compared with a jump of more than 18 percent a year ago.

The tit-for-tat feud has resulted in China slapping higher duties on U.S. car imports, although because BMW started building its X3 SUV in China for the local market instead of importing it from Spartanburg, South Carolina it was able to avoid a 40 percent import tariff on that vehicle while rivals such as Mercedes still export large SUVs from the U.S.

Increasing trade tension, with Trump also taking aim at European Union car tariffs, adds to headaches for automakers already navigating the costly shift to electric cars. This may force carmakers to retool their production networks to curb inter-continental exports and to serve regional trading blocs instead. BMW has already announced an expansion of its product capacity in China this year and said it will open a new car plant in Hungary.

BMW has forecast stronger momentum during the second half from new models such as the X2 compact SUV.

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