BMW profit hit by anti-trust case, spending on technology

By Parveen Kumar on May 7, 2019 • ( Leave a comment )

FRANKFURT, Germany — BMW lost money making cars in the first quarter as its automotive division was hit by a 1.4 billion-euro ($1.6 billion) set-aside for an anti-trust fine from the European Commission and by higher up-front costs for new technology and factories.

The fine and investment spending, along with weaker pricing in some markets, led to an operating loss for the company’s car-making business of 310 million euros, while its financial services and motorcycle businesses remained profitable and pushed the company as a whole into profit.

The loss reported Tuesday compares with an operating profit of 1.8 billion euros for the division in the year-earlier quarter.

Net profit for the entire firm fell to 588 million euros from 2.28 billion euros a year earlier. Revenue fell 0.9% to 22.46 billion euros.

The European Commission is investigating automakers on suspicion they colluded to restrict competition in the development of emissions-reduction technology. BMW disputes the allegations but says a fine is likely.

The Munich-based company was able to slightly increase the number of vehicles sold to 605,333 and said it expected “tail winds” in the second half as more new models hit the market. Those include improved hybrid versions of its mainstay sedans, the 3-Series and the larger 7-Series, as well as of the X5 sport-utility, which have extended their electric-only range before using the internal combustion engine.

The company saw increased expenses for research and development totaling 1.4 billion euros and spending on plants, property and equipment of 1 billion euros. Increases came from introducing new, flexible plant structures and building a new plant in Mexico.

BMW said it had seen pressure on pricing in some markets. A key metric, operating profit margin on its automobile business, declined to minus 1.6 percent from plus 9.7 percent in the same quarter a year ago. Without the antitrust penalty, it would have been plus 5.6 percent.

Automakers are relying on profits from their traditional business of selling cars with gasoline and diesel engines to fund heavy investments in new technology expected to change personal transportation in coming years.

Those include battery-powered autos, needed to meet tough emissions requirements in the European Union and in China in the coming decade, as well as ways of offering cars as a service such as car-sharing and ride-hailing through smartphone apps. In the longer term, companies are working on autonomous vehicles that drive themselves all or part of the time.