BMW loses ground to Mercedes as auto profits fall

Bloomberg

BMW AG lost ground to global luxury-car leader Mercedes-Benz as profits from carmaking fell while the euro’s gains prompted the manufacturer to reduce its forecast for automotive revenue.
Amid increased spending to refresh and expand its car lineup, BMW is now predicting a “slight” gain in 2017 auto revenue, compared with its previous forecast for a “solid” increase, the
Munich-based company said. Alongside the outlook for a lackluster end to the year, third-quarter the automotive profit margin slipped to 8.3 percent of revenue, below the 9.2 percent at Mercedes, where charges for air-bag recalls and diesel-model fixes held back profitability.
Once the biggest maker of luxury cars, BMW is struggling to regain momentum in its tussle with Mercedes. Its styling has become conservative, while it straddles the dual demands of refreshing its conventional lineup to make money and develop new technology for the looming shift to self-driving, electric cars.
“BMW is like a bloke settling into middle age,” Max Warburton, a London-based analyst at Sanford C. Bernstein Ltd., said in a note. “Getting older, slower and duller is not a pleasant experience.”
BMW shares fell 2.3 percent to 87.95 euros at 11:10 am in Frankfurt. That pushed the stock to a 0.9 percent decline this year, while Mercedes parent Daimler AG has gained 3 percent.
In addition to developing upscale models like the 8-Series coupe and full-size X7 sport utility vehicle, BMW is investing to accelerate a rollout of at least 12 battery-powered vehicles by 2025 in a race with Mercedes’s $11.6 billion electric-car push. BMW’s spending on research and development rose 22 percent to 4.06 billion euros in the first nine months of 2017, and the pace is set to continue for at least the next three years amid the biggest product offensive in the company’s history, Chief Financial Officer Nicolas Peter said.
“Significant upfront investment on research and development is necessary, both now and in the coming years,” Peter said. “Due to currency-translation effects, especially the strong euro, we now expect a slight, rather than solid increase in automotive -segment revenues.”