BMW reported earnings of $667 million, down more than 75% year over year, but earnings including a $1.6 billion charge for potential anti-trust fines. (European auto makers are still dealing with the fallout from diesel-emission scandals.) BMW sales totaled $25.5 billion, 2.5% better than what the German equivalent of Wall Street expected. Still, lower earnings pushed BMW stock down 1.5% Tuesday, worse than the 0.5% drop in the German DAX Index.
Despite the lower profits, BMW (ticker: BMW.Germany) management is ramping up spending on research and development, reiterating the company’s commitment to vehicle electrification. R&D spending in the first quarter amounted to 6.2% of sales, above management’s long-term goal of 5% to 5.5%. In 2017 and 2018, BMW respectively spent 6.2% and 7.1% of sales on research and development.
BMW’s growing commitment to autonomous driving and battery development is increasing competitive pressure on Tesla (TSLA). Even as the American electric-vehicle maker ramps up production of its new Model 3 sedan.
The back story: BMW, in many respects, is already Tesla’s chief competitor.
A nicely appointed BMW 5 Series sedan, comparable with the Tesla Model S, retails for about $70,000. A BMW X5, comparable with the Tesla Model X, retails for about $70,000 before adding options. And the lowest-priced BMW 3 Series sedan retails for about $40,000. That BMW price point is one important reason that Tesla targets $35,000 for its base-level model 3 sedan.
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What’s more, BMW management says the company has 11% of the U.S. luxury market, about double Tesla’s share. Tesla, however, doesn’t yet sell the range of models BMW has on offer. Tesla reports that its Model S outsells the equivalent competition by two to three times.
And it isn’t just gasoline versus electric competition for BMW versus Tesla in the luxury segment of the automotive market. BMW is a significant seller of electric vehicles. It’s delivered more than 27,000 electric cars so far in 2019. Tesla delivered more than 63,000 in the first quarter. And BMW plans “25 by 25,” meaning the German luxury auto maker is planning 25 electric-vehicle models—including plug in and hybrid cars—by 2025.
What’s new: As the world moves to electric vehicles because of both regulatory pressure and falling battery costs, BMW is emphasizing plant flexibility.
“In a volatile environment, flexibility is more important than ever,” reflected board member Nicolas Peter in a prepared statement. “All our larger plants will soon be able to build all types of vehicles within the same production structure—from combustion engine, plug-in hybrid to battery-electric vehicles. Electrified models are already integrated into production at nearly all our locations.”
“In Europe, our percentage of electrified vehicles delivered is three times the industry average,” added Chairman Harald Kruger. “In 2018, we were the market leader for electrification in both Europe and Germany—not just in the premium segment, but in the market as a whole. We plan to maintain a leading position going forward—both in Europe and world-wide.”
Looking ahead: As electric-vehicle competition heats up, auto sales are cooling down.
BMW management said Tuesday it expects total vehicle sales to drop slightly in 2019, reflecting what investors already know about weak U.S. and Chinese automotive demand. Recall, Chinese light-vehicle sales dropped 13% in the first quarter, U.S. sales were down about 3%.
This is a tough spot for auto makers, including Tesla. Tariffs, falling demand and expensive electric technologies will put a premium on partnerships and cost management in the years ahead. BMW, for instance, is working with Daimler (DAI.Germany) to develop autonomous driving technologies. BMW also said that tariffs could cost it several hundred million dollars of profit if trade disputes are not resolved soon. That a headwind faced by all auto makers including BMW and Tesla.
Write to Al Root at allen.root@dowjones.com
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