MUNICH -- BMW warned that its 2019 earnings will fall "well below" last year's level and announced a 12 billion euro ($13.6 billion) cost savings plan to help offset the impact of trade conflicts and unprecedented spending on electric cars.
Pretax profit is expected to decline by more than 10 percent this year, the automaker said on Wednesday.
BMW is responding by stepping up a savings program with plans to cull models, reduce development times by as much as one third and hold the workforce steady this year.
"Our industry is witnessing rapid transformation," Chief Financial Officer Nicolas Peter said. "A sustained high level of profitability is crucial if we are to continue driving change."
By the end of 2022, BMW expects to leverage potential efficiencies amounting to more than 12 billion euros.
Some of that would come from ramping up digital simulations as a way to reduce development times of new vehicle models by as much as a third. "Among other savings, digital simulations and virtual validation could eliminate the need for some 2,500 expensive prototype vehicles by the year 2024," BMW said.
BMW said it would expand group-wide efforts to increase efficiency and lower costs but ruled out forced lay offs. About 1,500 staff have taken early retirement and another 2,500 are eligible for retirement and early retirement, the company said.
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BMW already flagged a challenging year ahead last week, saying great efforts will be necessary to push through the costly shift to electric and self-driving cars as markets fall and trade concerns mount.
The company said automotive profit margin will be in the range of 6 percent to 8 percent this year, below an 8 percent to 10 percent long-term target. Last year BMW's automotive margin was 7.2 percent.
Peter said that guidance could fall even lower if conditions worsen.
"The high level of volatility makes it difficult to provide a clear forecast," BMW said. "Depending on how conditions develop, our guidance may be subject to additional risks; in particular, the risk of a no-deal Brexit and ongoing developments in international trade policy," Peter said.
BMW said it continues to expect an orderly Brexit and said operational disruptions from a disorderly Brexit would be likely to normalize after four to six weeks. "If tariffs are in the range of zero and 5 percent, the business case would not dramatically change," BMW production chief Oliver Zipse said, referring to the group's production network and exports of Mini vehicles from Oxford in England to the EU.
BMW’s weak outlook is a "troublesome" sign for the sector after the automaker looked better-placed than competitors with a number of strong new models and the luxury-car market in China holding up, Bernstein analyst Max Warburton wrote in a note. "This warning will inevitably increase worries about weaker names in the sector."
New models
New models such as the full-size BMW X7 SUV and the revamped 3-series sedan will help boost business in the second half to help deliver growth in all major sales regions, BMW said. The automaker's deliveries have dropped 2 percent through February as the European market declined for a sixth straight month.
BMW will launch sales of the revamped 1-series compact car late this year and the all-new 2-series Gran Coupe in early 2020. Both cars will use BMW's front-wheel drive architecture. The fwd platform is already used on models such as the BMW X1 SUV and Mini Countryman. The 2-series Gran Coupe will compete against the Mercedes-Benz CLA. BMW said it will debut at the Los Angeles auto show in November.
BMW said last week that it will not build a successor to the 3-series Gran Turismo "despite a good level of demand." More derivative versions will also be cut the company said, without specifying them. Further out, the company will eliminate about half of its drivetrain variants from 2021.
BMW is particularly hard-hit by trade concerns, with earnings suffering from extra tariffs on vehicles made in Spartanburg, South Carolina, and shipped to China. U.S. President Donald Trump has threatened to impose levies on European-made cars exported to the U.S.
The struggles are adding to challenges from higher spending on new electric cars, while efforts to comply with stricter carbon emissions regulations will also drive up manufacturing costs.
Currency swings and higher raw material prices will have a medium-to-high three-digit million euro negative impact, BMW said.
Other automakers are responding to the same stresses. Volkswagen Group’s Audi brand is scaling back management ranks for savings and faster decision-making, while Mercedes Benz-parent Daimler vowed comprehensive cost-cutting measures last month.
In addition to thinning ranks, automakers are also looking to each other for savings. BMW and Daimler have pushed aside rivalries to joined forces in sharing and autonomous cars. They are also studying a deeper cooperation on key components in conventional vehicles, people familiar with the matter said in December.
Bloomberg and Reuters contributed to this report
