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Abu Dhabi, UAETuesday 13 November 2018

BMW upbeat despite China tariffs as profits decline

World’s second-biggest luxury car maker is grappling with shifts in global trade barriers

Employees assemble BMW AG X3 4x4s. The firm has been hit by US/China trade tensions. Bloomberg
Employees assemble BMW AG X3 4x4s. The firm has been hit by US/China trade tensions. Bloomberg

BMW said it’s confident it’ll meet its annual profit targets, even as the German car maker finds itself in the crosshairs of a US-China trade battle.

The Munich-based manufacturer kept its forecast for the year when reporting second-quarter results on Thursday, making it an outlier among a host of car companies - including top rival Daimler - that have cut financial targets as global trade tensions escalate and higher raw-materials prices weigh.

The world’s second-biggest luxury car maker is grappling with shifts in global trade barriers, a trend evident in second-quarter results. After China said it would lower import tariffs from July 1, consumers held back on buying cars and demanded price reductions. BMW said earnings before interest and taxes fell 6.3 per cent in the period, flagging similar issues already reported by Daimler and Fiat Chrysler Automobiles.

At the same time, US President Donald Trump’s trade wrangle with the Asian nation is having an ongoing impact. Despite lowering import tariffs on cars from other nations, China has slapped retaliatory duties on US car imports, hitting BMW’s shipments of 4x4s it makes in Spartanburg, South Carolina.

“We are consistently preparing ourselves to meet the demands of tomorrow,” said chief executive Harald Krueger. This is “all the more important during challenging times.”

Group profit before tax will be at the same level as last year, and the company reiterated automotive revenue and unit sales would gain slightly. While BMW had previously said “at least” level, implying profit could rise, its confidence marks a contrast with Mercedes-Benz maker Daimler, which lowered its annual profit forecast.

Higher raw materials prices and currency issues also contributed to the earnings before interest, taxes, depreciation and amortisation drop to €2.75 billion (Dh11.74bn). The results beat the €2.68bn estimate compiled by Bloomberg.

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“BMW reported very positive cash flow but it’s all about what’s happening at the macro-level outside the company’s control,” said Frank Biller, a Stuttgart-based analyst with Landesbank Baden-Wuerttemberg. “BMW is shipping vehicles with strong margins from the US to China, and they’re hostage to the negative effect of the trade tensions.”

Mr Trump has also taken aim at European Union car tariffs, adding to headaches for car makers already navigating the costly shift to electric cars. BMW, with sales growth slowing to 1.8 per cent during the first half of the year, has forecast stronger momentum during the second half from new models like the X2 compact 4x4.

In China, where BMW has agreed to raise its stake in its joint venture with Brilliance Automotive Group, vehicle sales slowed to rise just 2.2 per cent, compared with a jump of more than 18 per cent a year ago. The company this year started production of its popular X3 4x4 in China as well as South Africa, boosting availability as well as offsetting trade tension.

The car maker sidestepped some of the other issues hitting competitors Volkswagen and Daimler. Both its German rivals have flagged bottlenecks that’ll drag on deliveries during the third quarter in Europe, where cars need to undergo a new emissions testing regime starting next month. BMW said the conversion to the new procedure was going according to plan.