BMW reported a 3% drop in operating profit in the second quarter to 2.53 billion euros ($2.77 billion) compared to the previous year despite the recovery in European car demand as China’s sales slowdown continued to pummel sales.
In a statement, BMW said that revenue climbed by 20% to 23.9 billion euros. The earnings of the automotive division fell 3.4% to 3.61 billion euros.
The company said that the profit decline was a "minor dip" that came as the result of bigger personnel costs, higher expenditure on new product start-ups and a bigger proportion of sales of lower margin compact vehicles. BMW said that even if the earnings pace is slowing, it still predicts that it will achieve new heights for sales and pretax profit in the full year.
The worldwide vehicle sales of BMW, Mini and Rolls-Royce cars climbed 7.5% to 573,079 units – setting a new record for the quarter. The automaker reported a drop in its return on sales in its automotive division to 8.4% (from 11.7% during the same period the previous year) and below the 10.7% margin posted by competitor Mercedes-Benz Cars and the 9.9% that Audi got.
BMW said that the steep slowdown in China sales may cause it to reconsider its profitability goals at the automotive division for the full year. BMW continues to predict that the unit’s earnings will still be at 8% to 10% of sales. However, BMW said that “if conditions on the Chinese market become more challenging, we cannot rule out a possible effect” on the forecast.
Customers have not wanted to make expensive purchases because of China’s cooling economy and a stock market rout. China is BMW’s biggest national sales market. For the first time in 10 years, the sales of BMW and Mini in China dropped for the first time with a 4.2% drop in May and a 0.1% decline in June.
According to CFO Friedrich Eichiner, the automaker stays convinced of the growth potential in China in the medium and long term considering the relatively low rate of vehicle ownership, the well-developed infrastructure in the country, and the strong affinity of the quick-growing middle class for known brands.
This is the first quarterly report under the leadership of CEO Harald Krueger who succeeded Norbert Reithofer in May. Aside from the car-market slowdown in China, Krueger has to contend with potential new rivals like Google and Apple that are thinking of entering the auto industry.
BMW is fighting to keep its lead in worldwide luxury car sales, which it has kept since it surpassed Mercedes in 2005. BMW as well as other auto companies have had to start cost-saving programs to maintain profitability as they have to spend more for new tech like self-driving cars and electric engines for the i8 sports car. BMW seeks to update its model lineup and as part of this strategy, it is coming out with a new version of the 7-series flagship sedan.