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BMW warns profits will fall because of costs and trade uncertainty

Time 1:44 pm, March 20, 2019

GERMAN carmaker BMW said today its profits in 2019 will be ‘well below’ last year’s and that it planned to cut 12 billion euros  – circa £10.43bn – in costs by the end of 2022 to offset spending on new technology.

The company said profits would be eroded by higher raw materials prices, the costs of compliance with tougher emissions requirements and unfavourable shifts in currency exchange rates.

The Munich-based carmaker also faces increased uncertainty owing to international trade conflicts that could lead to higher tariffs.

The company forecast a profit margin of six per cent to eight per cent for its automotive business, short of the long-term strategic target of eight per cent to 10 per cent, which it said still ‘remains the ambition’ for the company given ‘a stable business environment’.

Bosses at BMW's earnings press conference in Munich
Bosses at BMW’s earnings press conference in Munich (Matthias Schrader/AP)

BMW said it had no plans for layoffs even as it outlined cost-saving measures that include dropping half of its engine variants as it seeks to reduce product complexity.

The BMW, Mini and Rolls-Royce brands are to get a single sales division.

Chief financial officer Nicolas Peter said that given the headwinds to earnings, ‘we began to introduce countermeasures at an early stage and have taken a number of far-reaching decisions’.

The company said the measures were needed ‘to offset the ongoing high level of upfront expenditure required to embrace the mobility of the future’.

Carmakers around the world have faced heavy upfront costs for technology expected to change how people get from one place to another in the next decade. Those include electric cars and renting cars through smartphone apps.

However, the returns from such investments remain uncertain and car companies face competition from tech firms such as Uber and Waymo.

BMW made 7.2bn euros (circa £6.2bn) in net profit last year – down 17 per cent from 2017 – when it booked a gain of one billion dollars from US tax changes.

The company faced headwinds from increased tariffs on vehicles exported to China from the United States. It also suffered from turmoil on the German car market when companies faced bottlenecks getting cars certified for new emissions rules.

BMW faces uncertainty from US-China trade tensions that could result in new tariffs if talks don’t result in an agreement. US President Donald Trump has also threatened to impose car import tariffs that would hit EU carmakers, but has held off for now.

In addition, it could suffer disruption if Britain leaves the European Union without a negotiated departure agreement to address trade issues.

MORE: BMW and Toyota warn of no-deal Brexit threat to UK plants

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MORE: BMW warns that pre-tax profit, revenues and margin will be down 

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