BMW investment in new models to lift 2014 profit

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BMW Q1 vehicle sales of Rolls Royce, Mini and BMW cars reach new record

Reuters: BMW AG, the world’s biggest luxury carmaker, reported a better than expected rise in first-quarter profit thanks to surging demand from China and said a raft of new models will help it achieve record sales this year. The German firm is spending heavily in a bid to stay ahead of rivals Audi, which by comparison is suffering from a lack of new models, and Mercedes, which is still in the early stages of ramping up its product offensive. That spending dented earnings before interest and tax, which came in at 2.09 billion euros, just above the 2.05 billion euros ($2.83 billion) average forecast in a Reuters poll.

“BMW has a head start and looks to stay on top for now, even as Mercedes is catching up. BMW has a chance to overtake Audi in terms of profitability if sales and margin momentum holds up,” said Marc-Rene Tonn, autos analyst at M.M. Warburg. Despite spending a double digit million amount on investments and new models, which includes the i3 electric vehicle, BMW 4-series and a new Mini, the operating margin at BMW’s car business, the best gauge to benchmark it with its peers, was better than analysts had expected. BMW’s automotive EBIT (earnings before interest and tax) margin was 9.5% in the quarter, down from 9.9% in the year earlier period but higher than the 7% achieved by rival Mercedes-Benz Cars. The measure lagged the 10.1% achieved by Audi. “BMW just got off to a stronger start than what we had hoped for with an auto margin of 9.5%, versus our forecast of 9.2%,” analysts at ISI Global automotive said in a note on Tuesday adding that margins will likely improve further during the course of the year. Group vehicle sales of BMW, Mini and Rolls-Royce cars were up 8.7% in the quarter, a new record, helped by a 25% jump in sales in China. In Europe sales climbed 3.4%, even as sales in Germany fell 1.4% and U.S. sales edged up 2.7%, compared with the first quarter of 2013. BMW-branded car sales were up 12.1% driven by demand for the X1,X3 and X5 offroaders and its 3-series sedan. That helped to offset a 12.5% fall in sales at Mini as the company prepared to launch a new version of the brand’s core model. BMW Chief Financial Officer Friedrich Eichiner said car sales momentum would increase later this year as new products like the Mini are set to hit showrooms in June and July. New products also allow BMW to improve margins, he said. Munich-based BMW reiterated its aim to achieve a significant rise in sales volume in 2014 to 2 million cars or more - after it delivered a record 1.96 million Mini, Rolls Royce and BMW cars in 2013 - but cautioned that political and economic uncertainty may impact sales in Europe. BMW Group also reiterated its forecast of a significant rise in group profit before tax to compared with the previous year’s figure of 7.91 billion euros. But it added that the pace at which earnings increase would be influenced by high levels of expenditure for new technologies, fierce competition and rising personnel expenses.