BMW Profit Declines as Spending to Keep Ahead of Audi

Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury vehicles, reported an 8.8 percent drop in second-quarter profit as spending on new models to stay ahead of competitors offset higher sales.

Investments to expand factories and produce carbon-fiber parts for its first electric car caused the decline, even as cost-cutting lifted other European auto manufacturers. Earnings before interest and taxes fell to 2.07 billion euros ($2.74 billion) from 2.27 billion euros, the Munich-based said today. Revenue rose 1.8 percent to 19.6 billion euros on a 6.6 percent gain in car deliveries.

“BMW is the only carmaker in Europe who didn’t surprise positively in the second quarter,” said Daniel Schwarz, a Frankfurt-based analyst with Commerzbank AG.

The maker of BMW, Mini and Rolls-Royce vehicles is investing in the battery-powered i3, the new 4-Series coupe and an upgrade of the X5 sport-utility vehicle. The expansion is part of the company’s effort to maintain its sales lead over Volkswagen AG (VOW)’s Audi and Daimler AG (DAI)’s Mercedes-Benz, which have both vowed to pass BMW by the end of the decade and reported stronger earnings in the second quarter.

BMW shares fell as much as 3.1 percent to 71.31 euros and were down 1.7 percent at 12:06 p.m. in Frankfurt trading, making it the worst performer in Germany’s benchmark Dax index. The stock has declined 0.8 percent this year, valuing the company at 46.6 billion euros.

‘Dynamic’ Competitors

VW yesterday posted a surprise 1.8 percent increase in second-quarter operating profit after sales advanced 8.5 percent. Daimler’s second-quarter Ebit more than doubled and the company forecast second-half gains, backed by the new Mercedes CLA compact four-door coupe and a new generation of the top-of-the-line S-Class.

BMW’s figures are “slightly disappointing compared to Volkswagen and Daimler,” said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. “VW especially showed considerably more dynamic.”

BMW spent 2.4 billion euros to upgrade and expand factories in the first half, 60 percent more than a year ago. Research and development expenses will exceed the company’s target of 5 percent to 5.5 percent of revenue for all of 2013 after amounting to 5.3 percent in the first six months.

“We have always taken a long-term approach,” Chief Executive Officer Norbert Reithofer said today on a conference call. “That’s why we are making some major investments right now to ensure we continue our success in the future.”

Steady Forecast

BMW stuck to a forecast for 2013 pretax profit to be “on a similar scale” to last year’s 7.82 billion euros, even as sales rise. With pretax profit about unchanged at 4.04 billion after the first six months of year, that means essentially flat earnings in the second half. Daimler and VW are both forecasting growth for the remainder of 2013.

Gains in China and the U.S. have helped BMW sidestep the effects of the sovereign-debt crisis on Europe’s car market, which is sliding to a 20-year low. BMW, which doesn’t anticipate a recovery in demand in its home region before the second half of 2014, expects deliveries to rise this year for its third straight annual sales record.

BMW debuted the i3 on July 29 at simultaneous events in New York, London and Beijing. Hollywood stars Sienna Miller and James Franco, Duran Duran singer Simon Le Bon and model Poppy Delevingne attended the premiere in London.

Rolls-Royce Wraith

The push to sell the electric car and recoup investments in the technology underpinning the vehicle include an international print, TV and Internet ad campaign. The i3 will go on sale in Europe in November and in the U.S. and China next year.

BMW is rolling out 25 new models in 2013 and 2014, with 10 of them, such as the Rolls-Royce Wraith, having no predecessor. Rivals aren’t standing still. Mercedes is bringing out 13 all-new models by the end of the decade. Audi plans to double its SUV lineup to six by 2020, a person familiar with the matter said in February.

Global deliveries of the BMW brand rose 7.7 percent in the first half to 804,248 cars and SUVs, maintaining a 23,748-vehicle lead over Audi. Mercedes trailed behind in third place, with 694,433 deliveries.

The second-quarter margin at BMW’s auto division declined to 9.6 percent from 11.6 percent a year earlier and compares with a second-quarter operating margin of 9.9 percent at Audi and 6.4 at Mercedes. BMW reiterated today that Ebit at the auto division will be in the range of 8 percent to 10 percent of sales this year.

“Challenges are what drive us,” said Reithofer. “We intend to remain the industry leader.”

To contact the reporter on this story: Angela Maier in Munich at amaier8@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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