BMW cuts outlook after first-quarter deliveries slow

Frankfurt — BMW said on Wednesday the effect of the coronavirus is expected to hurt demand and profit throughout the year, forcing the German carmaker to lower its profit outlook for passenger cars after a slowdown in first-quarter deliveries.

The Munich-based company forecast its full-year automotive earnings before interest and taxes (ebit) margin to fall to 0%-3%, vs the 2%-4% range estimated before demand was decimated by government restrictions on movement worldwide aimed at slowing the coronavirus outbreak.

“The BMW Group still expects the spread of the coronavirus and the necessary containment measures to seriously dampen demand across all major markets over the entire year 2020,” the carmaker said.

It reported a 133% rise in first-quarter profit to €1.38bn. That compared with €589m in the same period a year earlier, when the result was pulled down by a €1.4bn provision.

Its automotive ebit margin rose to 1.3% from -1.6%.

“Auto margin at clean 1.6% looks disappointing given the strength of mix,” Jefferies automotive analyst Philippe Houchois said in a client note on Wednesday.

BMW’s outlook is the latest sign that profitability at legacy carmakers is on the wane, as they spend huge sums to clean up combustion engines in the face of increasingly stringent emissions regulations as well as rising competition from electric vehicle specialist Tesla.

Last week, Tesla said its automotive gross margin rose to 25.5% in the first quarter from 20.2% a year earlier, due to a 40% rise in deliveries, helped by demand for its Model Y crossover utility vehicle.

By contrast, BMW’s passenger-car deliveries fell 20.6% to 477,111 cars in a quarter blighted by the effect of the coronavirus.

Margins have come under pressure as customers shifted towards buying petrol-guzzling sport-utility vehicles (SUVs) while emissions rules are getting more stringent.

Sales of BMW’s “X” series of SUVs jumped 21% in 2019, making up 44% of the BMW brand’s global total. That has forced the carmaker to increase spending on hybrid petrol-electric and pure electric vehicle technology to meet emissions rules.

Carbon dioxide emissions from new vehicles sold in the EU must be 40% lower in 2021 compared with 2007, and 37.5% lower in 2030 vs 2021 — with fines for non-compliance.

BMW’s 2021 target is an EU fleet average of 102.5g CO₂ per kilometre. In 2019, its average fell just 1g from a year earlier to 127g, while research & development spending left its automotive ebit margin at 4.9%.

Reuters