Business / Auto Data

Weak China sales may force BMW to revise full-year profit targets

(Agencies) Updated: 2015-08-05 11:19

Bayerische Motoren Werke AG said slowing sales in China may force it to revise this year's profitability goals, challenging new Chief Executive Officer Harald Krueger as he seeks to defend his lead in the global luxury car industry.

Earnings before interest and taxes from automaking are still expected at 8 percent to 10 percent of sales, though "if conditions on the Chinese market become more challenging, we cannot rule out a possible effect" on the forecast, the Munich-based manufacturer said on Tuesday.

BMW has cut production by 16,000 cars in China, its biggest market, Chief Financial Officer Friedrich Eichiner said on Tuesday.

After a stock market rout discouraged customers from making large purchases, those still buying are demanding bigger price cuts, Eichiner said.

Carmakers' sales in China may drop in 2015 for the first time since 1998, Ford Motor Co said in late July.

"BMW has been bitten the most by the economic slowdown in China," Michael Raab, a Frankfurt-based analyst at Kepler Cheuvreux, said in a note. "BMW missed market expectations on most of its key metrics."

The second-quarter margin on automaking fell short of analysts' expectations due to a combination of the aging 7-Series sedan, due to be refreshed this year, and slowing growth in China, Raab said. The company's second-quarter margin on automaking narrowed to 8.4 percent, the lowest level since 2009, compared with 11.7 percent last year.

BMW's margin trailed Mercedes-Benz AG and Audi AG, which reported respective returns on sales of 10.5 percent and 9.8 percent.

The planned new 7-Series is part of BMW's drive to refresh its model line. Luxury-car manufacturing competitors such as Daimler AG are winning buyers with new products such as the latest generation of the Mercedes C-Class mid-size sedan.

"We're still under pressure in China," said Stuart Pearson, a London-based analyst with Exane BNP Paribas. "It's not just a BMW issue, but it's still going to be a wakeup call."

The Chinese car market is slowing more quickly than BMW expected, Krueger told reporters in a conference call on Tuesday.

Industrywide auto sales in China fell 3.2 percent last month, the first decline in more than two years.

The country's auto market has been the key growth driver for luxury-car makers in recent years.

Audi and BMW both reported sales declines for June in China, while demand at Mercedes jumped 39 percent, albeit from a much lower base.

BMW's second-quarter group earnings before interest and tax fell 3 percent from a year earlier to 2.53 billion euros ($2.77 billion). Profit matched the 2.54 billion-euro average of 10 analyst estimates compiled by Bloomberg. Revenue jumped 20 percent to 23.9 billion euros.

Krueger, 49, succeeded Norbert Reithofer as CEO in May. In addition to the economic slowdown, he's contending with potential new competitors, such as technology companies Apple Inc and Google Inc, that are studying whether to enter the auto industry.

BMW is battling to maintain its lead in global luxury car sales, which it has held since overtaking Mercedes in 2005.

Spending requirements for new technology such as self-driving cars and vehicles with electric engines like the i8 sports car are pushing the manufacturer and its rivals into cost-saving initiatives to maintain profitability levels.

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