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.


Analysts urge Canada to focus on boosting the economy

Updated 06 July 2020

Analysts urge Canada to focus on boosting the economy

  • Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time

TORONTO: Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada. The IMF expects Canada’s economy to contract by 8.4 percent this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery underway before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1 percent of GDP in 2020 from 88.3 percent in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.