German carmaker slashes profit margin to between -0.5% and 0.5% this year in face of competition from China
The German carmaker BMW has issued its second profit warning in a year, blaming the costs of a restructuring programme including significant job losses in the face of continuing competition from China.
The company is the latest to issue a profit downgrade in the German car sector, with Mercedes-Benz last week cutting its profit outlook. Western automakers have struggled to keep pace with lower-cost domestic rivals in China, which has led to reduced sales there and a rise in exports to Europe.
BMW signalled a potential for losses after slashing its profit margin to between -0.5% and 0.5% this year but blamed fourth-quarter costs tied to the restructuring that includes 8,000 job cuts in its home market. At the beginning of the year, BMW had still considered a margin of 4-6% would be possible.
It reported an 11% drop in third-quarter pre-tax earnings on Wednesday to €2.1bn (£1.75bn).
Sales in China fell 22% in the first nine months of the year but BMW said this was in line with the broader downturn in that market.
“Current developments in our industry call for decisiveness and swift implementation. We will therefore specifically intensify and accelerate structural measures,” the chief executive Milan Nedeljković said.
China “remains a key focus”, Nedeljković added, with the group’s Neue Klasse revival of its model offering beginning in China this month with the launch of the iX3.
BMW follows Volkswagen with painful restructuring costs caused by the rapidly changing market.
Because of the rapid launch of its new generation of electric vehicles, the company is writing off parts of its previous vehicle and technology generations and pricing in the costs of the redundancy programme.
The operating margin in BMW’s core automotive business narrowed to 3.4%, beating analysts’ forecast of 3.1% but declining from 5.2% a year earlier.
Excluding restructuring charges, the margin would be above 2%, within its previous forecast range, the company said.
BMW said it planned to cut management functions more quickly under its restructuring drive.
Revenue fell 6% to €30.4bn in the third quarter, hurt by the declining sales in China.
Although BMW’s rival Mercedes-Benz also reported lower profits in the third quarter, Porsche rebounded slightly but only after steep charges last year as it overhauls its model lineup and retreats from China.
