BMW delivers 2019 profit warning and plan to cut costs by 12 bln euros

BMW expects group pretax profit to fall by more than 10 percent this year, it said on Wednesday as it announced a sweeping 12 billion euro ($13.6 bln) savings and efficiency plan to help offset higher technology investment and currency costs. The German carmaker reported a 7.9 percent fall in 2018 operating profit last week and said it would step up efficiency measures in anticipation of a difficult year in a sector grappling with the shift toward electric vehicles amid continuing Brexit uncertainty and global economic worries. Group earnings before tax are expected to be significantly below 2018 levels, the company said at its results news conference in Munich on Wednesday. “Depending on how conditions develop, our guidance may be subject to additional risks; in particular, the risk of a no-deal Brexit and ongoing developments in international trade policy,” said Chief Financial Officer Nicolas Peter. BMW continues to expect an orderly Brexit and said operational disruptions from a disorderly Brexit would be likely to normalize after four to six weeks. “If tariffs are in the range of zero and 5 percent, the business case would not dramatically change,” BMW production chief Oliver Zipse said, referring to the group’s production network and exports of Mini vehicles from Oxford in England to the European Union. BMW said it would expand group-wide efforts to increase efficiency and lower costs but ruled out forced redundancies. About 1,500 staff have taken early retirement and another 2,500 are eligible for retirement and early retirement, the company said. By the end of 2022 the company expects the efficiency program to deliver savings of more than 12 billion euros, it said in a statement.


Some of that would come from ramping up digital simulations to speed development of new models by as much as a third. “Among other savings, digital simulations and virtual validation could eliminate the need for some 2,500 expensive prototype vehicles by the year 2024,” BMW said. However, the high cost of developing electric and self-driving cars will continue to weigh on earnings. BMW said it expects the operating margin in its automotive division to fall to between 6 percent and 8 percent this year, below its 8-10 percent target, disappointing analysts. Last year’s automotive operating margin was 7.2 percent but the launch of a new 3 series and a high-margin X7 sports utility vehicle was expected to boost margins this year, Jefferies analyst Philippe Houchois said. The 2019 guidance of a 6-8 percent margin came in lower than the investment bank’s 7-9 percent estimate, he added. Bernstein Research analyst Max Warburton said: “If BMW is facing this kind of difficulty and feels the need to guide this cautiously, what does this tell us about the rest of the sector?” Mercedes has far fewer new products. Audi seems to be facing more pricing pressure. VW is surely raising its development spending faster, Warburton added. BMW sidestepped questions about whether Chief Executive Harald Krueger would receive a contract extension, which is due this year if the supervisory board agrees. Krueger was hired for a five-year term in May 2015 and it is customary for German companies to communicate a year before contract expiry whether a board member’s contract will be extended. BMW production chief Zipse and Klaus Froehlich, the company’s board member responsible for development, are seen as potential replacements if Krueger does not remain as CEO. (This story has been refiled to remove extraneous question mark in fifth paragraph).  

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