German luxury car maker, BMW, has warned that its earnings will fall “well below” last year’s level, as it embarks on a €12 billion efficiency drive to offset the impact of trade conflicts and unprecedented spending on electric cars. The company said it expects its operating profit margin in its auto segment to be between 6 percent and 8 percent, below its long-term goal of 8 percent to 10 percent
The shares plummeted on Wednesday by 4.70 percent to end trading at 71.80 Euros the most since September last year after the German luxury carmaker its announced its profit warning announced this week.
“In addition to the headwinds, “the fact that some positive valuation effects recorded in 2018 will not be repeated in 2019 will result in a significant decline in the group’s financial result. Group profit before tax is therefore also expected to be well below the previous year’s level,” it said
BMW said it is responding by stepping up a savings programme with plans to cull models, reduce development times by as much as one third and hold the workforce steady this year.
According to the car maker, the struggles are adding to challenges from higher spending on new electric cars, while efforts to comply with stricter carbon emissions regulation will also drive up the manufacturing cost. Currency swings and higher raw material prices will have a medium-to-high three-digit million euro negative impact
The car maker is particularly hard-hit by trade tensions, with earnings suffering from extra tariffs on vehicles made in Spartanburg, South Carolina and shipped to China.
Also, concerns over Brexit continue to weigh, and BMW has said it may move production of the Mini city car in Oxford to elsewhere in Europe should the UK leave the EU without a deal. In addition, US president Donald Trump has threatened to impose levies on European-made cars exported to the US.
Interestingly, other carmakers are responding to the same stresses. Volkswagen Group’s Audi brand is scaling back management ranks for savings and faster decision-making, while Mercedes Benz-parent Daimler vowed comprehensive cost-cutting measures last month.
OLUFIKAYO OWOEYE
