Bavarian luxury vehicle manufacturer BMW AG expects the COVID-19 pandemic to hit its demands and earnings throughout 2020, which eventually led the German automaker to cut its profitability forecast for passenger cars, after the drop in first-quarter deliveries.
According to the organization’s forecast, a margin on automotive earnings before interest and taxes (EBIT) of 0% to 3% this year, versus the 2-4% seen before demand was crippled by the worldwide restrictions on movement in order to tackle the virus.
The Bavarian car manufacturer reported a jump of 133 percent in first quarter profit to 1.38 billion euros. However, that was against a period last year when earnings were pushed down to 589 million euros by a one-off 1.4 billion euro provision. The company expects to make an operating loss in the second quarter, thanks to the coronavirus lockdown in the brand’s main markets like Britain and US.
“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,” the company said on Wednesday.
Just like its rivals, BMW has also mentioned it would throttle back investments in order to preserve cash. According to the company, a 12 billion euros cost savings and efficiency plan will be extended.
“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,” Chief Financial Officer Nicolas Peter said, adding the Hungary plant would be delayed by a year.
Another automotive giant, Tesla said, its gross automotive margin rose to as much as 25.5% in the first quarter from 20.2% a year earlier, due to a 40% rise in deliveries, helped by demand for its Model Y crossover utility vehicle. However, BMW’s passenger car deliveries fell as much as 20.6 percent in a quarter, due to the outbreak.
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