Restructuring and falling earnings
BMW issued its second profit warning in a year, signaling a potential for losses after slashing its profit margin to between -0.5% and 0.5%. The margin fell sharply from the 4-6% range the company projected at the beginning of the year. The manufacturer reported an 11% drop in third-quarter pre-tax earnings, which fell to €2.1bn (£1.75bn) after revenue fell 6% to €30.4bn because of declining sales in China. These results follow a decision to implement a restructuring programme that includes 8,000 job cuts in its home market and faster reductions in management functions. The company is writing off parts of its previous vehicle and technology generations because it is pushing the rapid launch of its new generation of electric vehicles while simultaneously pricing in the costs of the redundancy programme. The operating margin in BMW’s core automotive business hit 3.4%, which beat analysts’ forecast of 3.1% but fell from 5.2% a year earlier. Excluding restructuring charges, the company said the margin would be above 2%, within its previous forecast range.
| Metric | Third Quarter Value | Trend/Forecast |
|---|---|---|
| Pre-tax earnings | €2.1bn (£1.75bn) | 11% decline |
| Revenue | €30.4bn | 6% fall |
| Automotive operating margin | 3.4% | Down from 5.2% |
| Full-year profit margin | -0.5% to 0.5% | Previous: 4-6% |
Pressure from Chinese markets
Sales in China fell 22% in the first nine months of the year, matching the broader downturn in that market. Revenue in the third quarter fell 6% to €30.4bn, a decline hurt by these falling sales in China. Chief executive Milan Nedeljkovic said, "Current developments in our industry call for decisiveness and swift implementation. We will therefore specifically intensify and accelerate structural measures." China remains a focus for the group. The company launched the iX3 this month in China as part of its Neue Klasse model range. BMW faces intense competition from lower-cost domestic rivals in China, a situation that has reduced sales there and increased exports to Europe. Mercedes-Benz cut its profit outlook last week, and BMW follows Volkswagen with painful restructuring costs. Although Mercedes-Benz also reported lower profits in the third quarter, Porsche rebounded slightly after taking steep charges last year as it overhauls its model lineup and retreats from China.
