BMW predicts lower profits in 2018 due to trade war, tougher emission standards

BMW issued a statement from its headquarters in Munich, Germany, today revising down its expected profits this year due to the ongoing trade war and diesel emissions updates to its fleet.

The luxury automaker's profits in 2017 amounted to 10.66 billion euros ($12.55 billion), according to the 2017 annual report. That profit, previously expected to be about the same this year, is now expected "to show a moderate decrease."

Shares of BMW dropped about 5 percent after BMW released its statement, according to the Associated Press.

Its automotive sector turned an 8.9 percent profit in 2017, a figure the company had expected would remain between 8 and 10 percent this year but will be closer to 7 percent, the statement said. This figure, according to the AP, represents how much the company is making per vehicle, an area that has been a strong point for makers of higher-priced cars.

BMW said it had expected 2018 to be challenging due to about $1 billion in company investments and hundreds of millions of dollars in European currency "headwinds" compared to 2017. 

It had hoped to overcome these problems with "strong operating performance," but concluded heading into the close of the third quarter that "supply distortions" from diesel-emission upgrades and trade conflicts would ultimately drive profits down for the year.

BMW officials could not be reached for further comment Tuesday afternoon, but its trade challenges this year have included the company's decision on July 30 to increase prices on South Carolina-made SUVs sold in China.

China had earlier in July imposed a 40 percent retaliatory tax on U.S. car imports — including BMWs made in Greer — after the administration of President Donald Trump had imposed a 25 percent tariff on $34 billion in Chinese goods.

More:Tariffs fallout: BMW announces price increase on South Carolina-made SUVs sold in China

"The continuing international trade conflicts are aggravating the market situation and feeding uncertainty," the company's statement said Tuesday. "These circumstances are distorting demand more than anticipated and leading to pricing pressure in several automotive markets."

From the Associated Press:

BMW's profit warning — the second from a major German automaker this year — underlines the difficulties facing the industry in maintaining its record of steadily growing sales and profits.

The company also said that new, tougher diesel emissions tests in Europe, called WLTP for Worldwide Harmonized Light Vehicle Test Procedure, have led to market and sales distortions, even though BMW has managed to implement the new standard ahead of time.

Auto registrations soared in Europe in August as companies unloaded noncompliant vehicles before the new standard came into force on Sept. 1 and made them unsellable, often in the form of fleet or rental sales.

The company also cited costs for warranty actions. In August, it announced a recall of 324,000 due to a defect that could cause vehicle fires.

Analysts at Sanford C. Bernstein said that the price pressure from competitors Audi and Daimler's Mercedes selling off vehicles ahead of the emissions deadline should be temporary.

"The fact that some German companies have screwed up WLTP testing and are now offering discounts on pre-registered cars is not a sign of the consumer rolling over," they wrote in an email. If the testing issue passes "and 2019 demand remains intact, earnings should stabilize."