BMW AG said its core automotive business swung to a loss in the first three months of the year on a EUR1.4 billion ($1.6 billion) charge against potential fines from a European antitrust probe and rising costs to develop new technology for electric and self-driving cars, ONA reports citing the Company.
The German luxury car maker revealed the charge in April, after the European Commission said a preliminary investigation had determined that BMW and rivals Daimler AG and Volkswagen AG had colluded to prevent competition in emissions technology, a charge which the car makers deny.
BMW disclosed the full impact on earnings on Tuesday in its interim report for the three months through March. The Munich-based car maker said the automotive division, which accounts for the bulk of the company’s business, reported a loss before interest and taxes of EUR310 million after a profit of EUR1.9 billion a year before.
Shares in BMW dropped 1% to trade at around EUR73 in early trade in Frankfurt.
The deterioration of earnings in the automotive division weighed on the entire group, which saw net profit plunge 75% to EUR561 million in the first quarter, as revenues slipped nearly 1% to EUR22.5 billion. Solid earnings in its financial services division prevented the entire group from tumbling into the red.
Analysts had expected a net profit of EUR489 million and revenue of EUR22.13 billion, according to consensus estimates compiled by FactSet.
The company reiterated that it would contest the Commission’s judgment.
BMW Chief Executive Harald Krüger dismissed the collapse in earnings as a technical blip, saying the company’s operations performed well despite the headwinds from a slowing global economy, flattening demand in core markets, and a volatile trade environment.
“We remain firmly on course and expect business to benefit from tailwinds, especially in the second half of the year, as numerous new models become available,” he said in a statement.
New car sales edged slightly higher in the first three months to 605,333 vehicles, dulled by a nearly 2% decline in sales of the company’s compact Mini brand and a slight bump in BMW brand vehicles. Revenue in the automotive business fell slightly to EUR19.2 billion.
Reflecting the broader slowdown in key auto markets world-wide, BMW sales fell nearly 2% in the U.S. and were virtually unchanged in Europe. In China, which is experiencing its first decline in auto sales for nearly three decades, BMW bucked the trend and boosted vehicle sales 10% in the first three months.
BMW’s results are also reflective of broader trends in the industry which has been hit by rising costs to develop new technology. Tougher emissions regulations, especially in Europe and China, is driving huge investment to develop electric vehicles, improve combustion engines, and phase out diesel engines.
The threat from tech giants such as Alphabet Inc.’s Google, Apple Inc., and new mobility businesses such as Uber Technologies Inc. is also forcing car makers to develop new self-driving vehicle technology and new business models such as ride-hailing and car-sharing.
BMW said in its earnings statements that despite the costs and the hit to earnings, the company was continuing to invest in technologies deemed vital to its future. As a result, BMW said expenses for research and development rose 8.4% to EUR1.4 billion, or 6.2% of revenue, in the first quarter.
“The upfront expenditure we are incurring today to further develop electric mobility and autonomous driving is a prerequisite for tomorrow’s success,” said BMW CFO Nicolas Peter.