BMW profits hit by higher costs, new tech spending

BMW is spending heavily on revamping factories as it looks to a future based on battery-powered and autonomous vehicles. (AFP)
Updated 01 August 2019

BMW profits hit by higher costs, new tech spending

  • Carmaker looks to advance technologies to ‘master enormous challenges’

FRANKFURT: Luxury automaker BMW said that net profit fell 29 percent to €1.48 billion ($1.63 billion) in the second quarter from a year earlier, as profits were reduced by higher spending on revamping factories and on new technologies such as battery-only cars and smartphone-based services.
BMW spent €1.4 billion ($1.5 billion) on research and development in the quarter, and invested €1.2 billion ($1.3 billion) in new plants to modernize production and prepare for new models. It also saw higher production costs from an increasing proportion of electric vehicles and higher raw materials prices. The company said it was able to increase its share in the key China market despite a shrinking overall market there.

The company and the auto industry as a whole are facing a double challenge: Make money selling conventional cars while sinking billions into new technologies such as battery-powered and autonomous cars, and new services that don’t necessarily involve car ownership such as car-sharing and ride-hailing apps.

The industry is also facing headwinds from the US-China trade conflict and from slower auto sales in China, the world’s biggest auto market. Tougher EU limits on emissions of carbon dioxide, the primary greenhouse gas blamed for global warming, are forcing carmakers to develop electric cars even though battery-only vehicles are only a small fraction of current industry sales due to higher prices and concerns about battery range. China is also pushing carmakers to include more electric and hybrid vehicles.

BMW, which is based in Munich, said that sales numbers and revenue increased in the April-June period despite declining global markets and that it was sticking with its profit forecast for the year. Sales rose 1.5 percent to 647,500 vehicles, helped by its BMW Brilliance joint venture in China. Revenues rose 2.9 percent to €25.7 billion.

BMW’s operating profit margin on vehicles was 6.5 percent for the quarter, down from 8.6 percent a year ago but leaving the company on target to achieve its forecast of 4.5 percent to 6.5 percent for the full year, a figure that was lowered by inclusion of a €1.4 billion set aside for EU anti-trust proceedings in the first quarter. Profitability remains below BMW’s long-term strategic aim for 8-10 percent. Nicolas Peter, chief financial officer, declined during a conference call with reporters to give a forecast for when the company might return to that level.

CEO Harald Krueger said that the company was “on course to meet our targets for the full year.” He said the company was consistently leveraging “new technologies to successfully master the enormous challenges facing our industry during this phase of transformation.” Krueger is leaving his post on Aug. 16 and will be succeeded by production chief Oliver Zipse.


China's aviation regulator raised concerns with Boeing on 737 MAX design changes

Updated 12 December 2019

China's aviation regulator raised concerns with Boeing on 737 MAX design changes

  • China is reviewing the airworthiness of the plane
  • China was first country to ground plane in March

BEIJING: China’s aviation regulator raised “important concerns” with Boeing Co. on the reliability and security of design changes to the grounded 737 MAX, it said on Thursday, but declined to comment on when the plane might fly again in China.
China is reviewing the airworthiness of the plane based on proposed changes to software and flight control systems according to a bilateral agreement with the United States, Civil Aviation Administration of China (CAAC) spokesman Liu Luxu told reporters at a monthly briefing.
He reiterated that for the plane to resume flights in China, it needed to be re-certified, pilots needed comprehensive and effective training to restore confidence in the model and the causes of two crashes that killed 346 people needed to be investigated with effective measures put in place to prevent another one.
China was the first country to ground the 737 MAX after the second crash in Ethiopia in March and had set up a task force to review design changes to the aircraft that Boeing had submitted.
The US Federal Aviation Administration (FAA) will not allow the 737 MAX to resume flying before the end of 2019, its chief, Steve Dickson, said on Wednesday.
Once the FAA approves the reintroduction into service, the 737 MAX can operate in the United States, but individual regulators could keep the planes grounded in other countries until they complete their own reviews.
“Due to the trade war, the jury is still out on when China would reintroduce the aircraft,” said Rob Morris, Global Head of Consultancy at Ascend by Cirium.
Chinese airlines had 97 737 MAX jets in operation before the global grounding, the most of any country, according to Cirium Fleets Analyzer.