BMW Pushes New Models, Cost Cuts to Beat Mercedes-Benz - Mercedes Benz SLK Forum

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BMW Pushes New Models, Cost Cuts to Beat Mercedes-Benz

Bloomberg) -- BMW AG is counting on a fresh product lineup and better efficiency to take on rival Mercedes-Benz as waning demand in key markets squeezes profit across the industry, raising the stakes for incoming boss Oliver Zipse.

The push, based on a record model offensive started under outgoing Chief Executive Officer Harald Krueger, has started bearing fruit. Robust pricing and higher sales helped soften the drag on second-quarter earnings from surging expenses for new models like the revamped 3-series as well as expenses for a new factory in Mexico, BMW said Thursday in a statement.

“Globally, we were able to significantly reduce the difference between the brand BMW and Mercedes-Benz in the first half-year,” Krueger said on call with reporters. “In the month of June, BMW was ahead of Mercedes.”

The comments show rivalries in the carmaking world remain front of mind, even among mushrooming partnerships to help stem the transformation to self-driving and electric cars. BMW’s growing sales gap to Daimler AG’s Mercedes-Benz in recent years has been a thorn in the side during much of Krueger’s tenure, and the Munich-based carmaker has vowed for the brand to retake the number one spot next year. BMW’s growing lag to its German competitor and deteriorating margins contributed to the imminent CEO changeover.

BMW sent “a strong message to peers” as product momentum, profitability and cash flow are poised to improve, Evercore ISI analyst Arndt Ellinghorst said in a note to clients. “In an extremely volatile auto world, this is very good news.”

BMW’s shares rose 1.5% in Frankfurt trading, paring its decline for the year to 4%.

While BMW was forced to cut its guidance earlier this year following a large provision for a possible cartel fine, Daimler has warned of worsening outlook four times in just over 12 months, partly due to manufacturing hiccups hitting key models. The lowered expectations have made for a difficult start for new CEO Ola Kallenius, who took over from Dieter Zetsche in May. Trade woes, uncertainty over Brexit and large-scale restructuring programs also took their toll on Ford Motor Co. and Nissan Motor Co.

In Krueger’s final quarter before Zipse takes over on Aug. 16, BMW’s earnings before interest and taxes tumbled 20% to 2.2 billion euros ($2.4 billion). Capital expenditures surged 39% amid a push to retool factories to toggle between battery-powered and conventional vehicles.

To help shoulder the spending, the maker of BMW, Mini and Rolls-Royce vehicles vowed to boost efficiency as part of an ongoing 12 billion-euro savings program. BMW has accelerated plans to introduce 25 electrified models by two years to 2023.

After suffering a loss in the first quarter, BMW’s car unit bounced back, boosting the company’s expectations for a stronger second half of the year. Still, the auto margin narrowed to 6.5% from 8.6% a year earlier.

“Those of us watching BMW from the outside can chose either to admire BMW’s relative resilience, or complain that margins should be higher,” Bernstein analyst Max Warburton said in an note. “The lack of profit growth on the second-quarter’s great sales growth is sobering.”

BMW’s confidence is built around new models like the full-sized X7 sport utility vehicle and 8-Series coupe, which both compete at the lucrative top-end of their segments. The company stuck to a goal of a slight increase in car deliveries for the year and an automotive profit margin between 4.5% and 6.5%, including charges.

Electric Future

With Krueger stepping down as CEO, the turnaround into an electric future will now fall to Zipse. BMW’s current production head has championed maintaining maximum flexibility in the company’s approach to electric cars, opting to upgrade the company’s factories to make all kinds of vehicles instead of introducing a dedicated production platform and retooling whole plants.

To meet uncertain demand, BMW is readying a mix of fully-electric and hybrid vehicles in coming years to compete in a varied regulatory landscape of tightening emission rules globally.

“The customers are different and the infrastructure is different as well in individual markets,” Krueger said Thursday.

Cooperation projects with peers and technology firms will help share costs for expensive technology like self-driving cars. The carmaker has recently agreed to cooperate on a car sharing and ride hailing offering with Daimler, as well as autonomous cars. BMW is also collaborating with Jaguar Land Rover on electric cars, while Krueger on Thursday ruled out entering equity ties with the Tata Motors Ltd. division.

“It’s primarily about speed, not sheer scale” to remain competitive, he said.

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