BMW CEO Pulls Off Debut Quarter With Cost Cuts, Higher SUV Sales

(Bloomberg) --

BMW AG is showing signs of recovery under its new chief executive officer, with aggressive cost-cutting and demand for upscale models like the big X7 SUV helping to bolster third quarter earnings.

After stumbling in recent quarters with low profitability and a series of operational and regulatory issues, CEO Oliver Zipse’s first results report after taking charge showed a 33% jump in earnings before interest and taxes, according to a statement Wednesday.

BMW CEO Pulls Off Debut Quarter With Cost Cuts, Higher SUV Sales

The earnings represent “a first positive sign after several disappointing quarters,” said Juergen Pieper, an analyst at Bankhaus Metzler in a note. The shares fell 0.8% at 10:58 a.m. in Frankfurt.

The Munich-based manufacturer is pressing ahead with a cost-cutting program aimed at saving more than 12 billion euros ($13.3 billion) to help pay for development of electric vehicles and digital features like automated driving. The urgency is evident amid a slump in car sales in key markets like Europe and China and mounting investment costs.

“The efficiency-boosting measures we have implemented are bearing fruit,” Chief Financial Officer Nicolas Peter said in the statement. “Nonetheless, we aspire to achieve more than that.”

BMW’s automotive profit margin widened to 6.6% from 4.4% a year ago, when it faced disruptions from regulatory bottlenecks that caused a widespread slump in European car sales. Still, the figure is below its target range of 8% to 10%.

Earnings before interest and taxes of 2.29 billion euros beat analyst expectations of 2.12 billion euros. Research and development expenses rose 9.4% to 4.25 billion euros in the first nine months of 2019.

‘Underestimated Complexity’

To fund investment BMW has been relying on sales of high-end cars, including the new X7, and demand from China, where deliveries have surged 14.5% this year.

The push into battery-powered vehicles is picking up pace. The electric variant of the Mini will start production this month, followed by the BMW iX3 next year. The company is straining to meet tighter environmental regulations that start next year in Europe and would impose tough fines on carmakers whose average car emissions exceed 95 grams carbon-dioxide per kilometer.

Amid the tougher regulatory pressure and slowing demand in key markets, carmakers are looking to cut costs. Ford Motor Co. cut its full-year forecast in October, while Volkswagen AG’s CFO Frank Witter last week warned the next two years will be tough.

“The vehicle of the future, with all its integrated digital functions, is a high-tech product of a complexity that is still underestimated,” Zipse said in the statement.

©2019 Bloomberg L.P.

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