BMW cuts outlook on coronavirus impact

FRANKFURT -- BMW said the impact of the coronavirus will likely hurt demand and profit throughout the year, forcing the automaker to lower its profit outlook following a slowdown in first-quarter deliveries.

The automaker forecast a full-year automotive earnings before interest and taxes margin of 0 percent to 3 percent, versus the 2 percent to 4 percent range it had estimated before demand was decimated by government restrictions aimed at slowing the coronavirus outbreak.

"The BMW Group still expects the spread of the coronavirus and the necessary containment measures to seriously dampen demand across all major markets over the entire year 2020," the company said in a statement on Wednesday.

BMW CEO Oliver Zipse said: "The situation remains serious. We are keeping a tight rein on inventory levels because liquidity has absolute priority in this situation."

Free cash flow at the automotive business was minus 2.2 billion euros ($2.4 billion) in the first quarter and BMW said it no longer expected to achieve positive free cash flow in 2020, despite cutting back investments.

BMW reported a 133 percent rise in first-quarter earnings before interest and taxes to 1.38 billion euros ($1.5 billion,) due to the absence of a one-off provision in the year-earlier period. That compared with 589 million euros ($636 million) in the same period a year earlier, when the result was pulled down by a 1.4 billion euro provision for a potential antitrust fine from the European Union’s investigation into alleged collusion on cleaner-emissions cars.

The automaker's automotive EBIT margin rose to 1.3 percent from minus 1.6 percent a year earlier. Jefferies automotive analyst Philippe Houchois described the margin as disappointing, given solid sales of typically more profitable SUVs.

First-quarter vehicle deliveries fell 21 percent to 477,111 on the impact of the coronavirus.

Delivery volumes will not rebound within a few weeks as BMW had assumed, with the highest negative impact now expected in the second quarter of 2020, the company said, while also cautioning that matters could still get worse. Both Fiat Chrysler Automobiles and Volkswagen have said they expect to lose money in the second quarter.

Further margin pressure could come from a longer recession in major markets, distortions caused by an even stronger competitive environment or from a second wave of infections and associated containment measures, BMW said.

While BMW's first quarter looks "fairly good," the current period will mark the trough, said Bankhaus Metzler analyst Juergen Pieper. "A loss is very likely, revenues could be down as much as 25 percent to 30 percent," he said.

BMW is reducing investments to less than 4 billion euros ($4.3 billion) this year from 5.7 billion euros previously, CFO  Nicolas Peter said on Wednesday.

"In light of the current situation, we will be delaying a number of projects, like the plant in Hungary. Other projects will be carefully reconsidered," Peter said, adding that the Hungary plant would be delayed by a year.

A 12 billion euros cost savings and efficiency plan will be extended, BMW said, without providing further details.

BMW's results come as automakers are spending huge sums to clean up combustion engines in the face of increasingly stringent emissions regulations as well as rising competition from electric vehicle specialist Tesla.

Margins have come under pressure as customers shifted towards buying SUVs and crossovers at a time when emissions rules are getting more stringent.

Sales of BMW's X series of utility vehicles jumped 21 percent last year, making up 44 percent of the BMW brand's global total. That has forced the automaker to increase spending on hybrid gasoline-electric and full-electric vehicle technology to meet emissions rules.

Carbon dioxide emissions from new vehicles sold in the European Union must be 40 percent lower in 2021 compared with 2007, and 37.5 percent lower in 2030 versus 2021 -- with fines for non-compliance.

BMW's 2021 target is an EU fleet average of 102.5 grams of CO2 per km. Last year, its average fell just 1 gram from a year earlier to 127 grams.

Reuters and Bloomberg contributed to this report