BMW reports first-quarter profit rise as coronavirus saps demand

FRANKFURT (Reuters) – BMW AG (BMWG.DE) on Wednesday reported a 133% rise in first-quarter profit, due to the absence of a one-off provision in the year-earlier period, but said the impact of the coronavirus could erode demand and profit.

Earnings before interest and taxes rose to 1.38 billion euros ($1.50 billion). That compared with 589 million euros in the same period a year earlier, when the result was pulled down by a 1.4 billion euro provision.

Its earnings before interest and taxes (EBIT) margin for its autos division reached 1.3% from a negative 1.6% margin in the year-earlier period.

The Munich-based firm late on Tuesday forecast a full-year automotive EBIT margin of 0% to 3%, versus the 2% to 4% range estimated before demand was decimated by government restrictions on movement worldwide aimed at slowing the coronavirus outbreak.

“The BMW Group still expects the spread of the coronavirus and the necessary containment measures to seriously dampen demand across all major markets over the entire year 2020,” the automaker said on Wednesday.

BMW’s results are the latest indication of deteriorating profitability at legacy automakers, which are spending huge sums to clean up combustion engines in the face of increasingly stringent emissions regulations as well as rising competition from electric vehicle specialist Tesla Inc (TSLA.O).

Last week, Tesla said its automotive gross margin rose to 25.5% in the first quarter from 20.2% a year earlier, due to a 40% rise in deliveries, helped by demand for its Model Y crossover utility vehicle.

By contrast, BMW’s deliveries fell 20.6% to 477,111 cars in a quarter blighted by the impact of the coronavirus.

Margins have come under pressure as customers shifted towards buying petrol-guzzling sport-utility vehicles (SUVs) at a time when emissions rules are getting more stringent.

Sales of BMW’s “X” series of SUVs jumped 21% last year, making up 44% of the BMW brand’s global total. That has forced the automaker to increase spending on hybrid petrol-electric and pure electric vehicle technology to meet emissions rules.

Carbon dioxide emissions from new vehicles sold in the European Union must be 40% lower in 2021 compared with 2007, and 37.5% lower in 2030 versus 2021 – with fines for non-compliance.

BMW’s 2021 target is an E.U. fleet average of 102.5 grams of CO2 per kilometre. Last year, its average fell just 1 gram from a year earlier to 127 grams, while research and development spending left its automotive EBIT margin at 4.9%.

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