BMW warns no-deal Brexit poses risk to earnings momentum

BMW said its full-year earnings will come in at the upper range of its guidance, but warned a no-deal Brexit would cost hundreds of millions of euros.

BMW expects its automotive profit margin will be between 2 percent and 3 percent, the high end of the range it forecast for the year, Chief Financial Officer Nicolas Peter said Wednesday.

Free cash flow will be clearly above the 1.5 billion euros ($1.8 billion) guided previously, he said.

While there is optimism on earnings, the executive said he is concerned about trade talks between the European Union and the UK. The tariffs on autos that would follow a hard Brexit would cost BMW a "mid-three-digit" million-euro amount per year, Peter said.

To partially offset costs, the automaker would quickly raise prices for British-built Minis in the EU and BMW cars imported to the UK, Peter said.

"It's a lot of money and we'll have to react," Peter told reporters during an online roundtable discussion. He said the measures would not fully compensate for the damages.

Brexit talks are hanging in the balance two weeks before the UK will drop out of existing trading arrangements with the EU. Leaders on both sides have said they will continue with talks, but have warned that an agreement might not be reached.

That is causing headaches at BMW, which produced about 230,000 Mini and Rolls-Royce cars in the UK last year, more than half of which were exported to the EU. At the same time, the UK is also a major market for BMW-branded cars.

In the long term, the Mini brand is "flexibly positioned," Peter said, referring to the production of the Mini Countryman in Leipzig, Germany, from 2023 and Mini production in China.

"In the long term, we have to decide what the customs situation is like," he said.

UK importers have warned of serious disruptions to supply chains due to Brexit, with the UK adjusting to new terms with its biggest trading partner alongside the coronavirus outbreak and the holiday retail rush.

"We hope the UK and the European Union will come to a sensible agreement," Peter said. The company has stockpiled parts to safeguard production, he said.