BMW cuts outlook, blames trade disputes, emissions costs
New standards and the U.S.-China trade dispute are weighing on the luxury car maker
BERLIN— Shares in BMW AG fell by as much as 6% on Tuesday after the luxury car maker warned that emissions-related costs, product recalls and fierce price competition amid global trade disputes would dampen profit this year.
BMW said the main reason for the dimmer outlook was the cost of adjusting to new global rules for emissions testing to measure pollutants, greenhouse gas emissions, and fuel economy. The test, called world harmonized light vehicles test procedure, or WLTP, came into force in Europe in September and BMW racked up significant costs earlier in the year to adapt its vehicles to the new regime.
The profit warning comes amid a flurry of similar concerns from other companies in the sector, such as rival Daimler AG and supplier Continental AG, which have spoken out against disruptions to global markets and supply chains from political tensions and the U.S.-China trade dispute.
Several industry analysts saw BMW’s unexpected warning as a turning point in the industry, a sign that regulatory challenges and a volatile global trade environment would further hit sales and dent corporate profits. Analysts had expected weak auto industry performance in the three months to October to improve at the end of the year, but now fear it will continue.
“Today’s warning has extinguished the idea that the sector will rally again after a wellf lagged soft third-quarter,” said Patrick Hummel, an automotive analyst at UBS.
Analysts cut their earnings outlook for BMW by about 1.2 billion euros ($1.4 billion), bringing consensus estimates down to about 9.7 billion euros.
When BMW set its original guidance for 2018 earlier this year, it said it expected a challenging year on account of around 1 billion euros in upfront costs to develop new technology and currency headwinds in the “mid-to-high three-digit million euro range.”
That assessment now looks optimistic.
The company now said it an- ticipated full-year pre-tax profit for the entire company “to show a moderate decrease” from the previous year and revenue from its automotive businesses to be “slightly lower.”
BMW had previously forecast a slight increase in automotive revenue and pretax earnings at about the same level as last year. In 2017, it reported pretax earnings of 10.7 billion euros and automotive revenue of 88.6 billion euors.
The Munich-based car maker also lowered the guidance on its profit margin in the automotive segment to “at least 7%” from a previous estimate of a range of 8% to 10%.
The company also cited increased goodwill and warranty costs associated with product recalls and the impact of price reductions on vehicles sold in China in the wake of the continuing trade dispute between the U.S. and China. However, BMW declined to quantify the full financial impact of these issues.
The warning sent the company’s shares down 5.7% to 78.75 euros in midafternoon trading in Frankfurt. They later recovered to 80.35 euros, down 4%.
All major European auto makers gave up today’s gains in the wake of BMW’s profit warning. The biggest loser was Peugeot SA, which fell 2.5% after the news, while Fiat Chrysler Automobiles NV was least hit, falling 0.5%.