BMW CEO Defends Record After First Automaking Loss in Decade

(Bloomberg) -- BMW AG’s chief executive officer defended his track record at the company’s annual meeting, highlighting a luxury lead in the U.S. and sales growth through a Chinese downturn, even as the carmaker battles to reverse weaker margins.

BMW is struggling alongside rivals with a drop in demand after years of auto-industry growth, and record spending for a technology transition. After a profit warning last year, the world’s second-biggest luxury carmaker had a tough start to 2019, reducing momentum from an unprecedented model roll-out to a whimper. That and the squandering of BMW’s early lead in electric cars is putting pressure on CEO Harald Krueger to prove his strategy.

“I am certain that we can continue our successful development -- especially now that our model offensive is bearing fruit,” he said in prepared remarks to shareholders at the company’s annual meeting. “Your company remains strong, through both calm and stormy times.”

The German manufacturer, which plans 21 new or updated models this year, reported its first loss in a decade in the main automotive division in the three months through March, after booking a 1.4 billion euro provision ($1.6 billion) for potential European Union fines over collusion. Even excluding this charge, the unit’s return on sales dropped to the lowest point in 10 years.

“Where is this model offensive?” German shareholder association Vice-President Daniela Bergdolt said in her speech to loud applause from shareholders. “Sure, you’ve got the iNEXT, but I was expecting something that blows Tesla out of the water.”

Mercedes Crown

Krueger has pledged to retake the premium car-sales crown from Mercedes by 2020 after losing the top spot in 2016. In the year through April, Mercedes led BMW on global deliveries by a margin of 52,340 cars, though BMW sales gained 0.8% and its rival fell 5.6%. Stuttgart-based Mercedes also remained ahead in China.

BMW moved early in electric cars among major carmakers with the electric i3 in 2013, but paused putting more battery-only cars on the road after sluggish sales until this year, when it’ll unveil an electric Mini. Meanwhile, Jaguar, Mercedes and Audi have started offering a fresh generation of battery-powered sport utility vehicles.

While Volkswagen AG, Mercedes-Benz maker Daimler AG and Audi are investing into electric cars “at full speed, BMW is traveling in Munich with the handbrake on,” Union Investment fund manager Janne Werning said in prepared remarks to the meeting.

BMW plans 12 electric cars by 2025. Krueger defended his cautious approach, saying no one knew how fast electric cars would take over or which technology was set to win out. BMW’s stance contrasts with Volkswagen’s 30 billion-euro ($34 billion) electric offensive of 70 models by 2028. BMW is producing hybrid and battery cars on the same production lines as combustion vehicles because it lacks VW’s economies of scale.

“I do not believe it would be wise, from a business perspective, to put all our eggs in one basket,” Krueger said, highlighting plug-in hybrid vehicles and fuel-cell cars as alternatives.

Savings Program

Krueger announced a 12-billion-euro savings program in March by culling models and reducing drivetrain options. For the second half the year, BMW expects business to improve thanks to models like the revamped 3-Series sedan and the new full-size X7 sport utility vehicle.

There’s been little let-up in the pressure that’s been intensifying due to the U.S.-China trade spat dragging on the global economy, and unprecedented spending demands for the transformation to electric cars. President Donald Trump is poised to delay a decision on tariffs on cars imported from the E.U. by up to six months, people familiar with the matter said Wednesday.

Though investors have voiced criticisms, there’s little risk of a revolt. Quandt family members Susanne Klatten and her brother Stefan Quandt own 45 percent of the company’s shares.

To contact the reporter on this story: Oliver Sachgau in Munich at osachgau@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Tara Patel

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