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Despite Profit Rebound In Third Quarter, BMW Warns Of Pandemic Risks

Despite Profit Rebound In Third Quarter, BMW Warns Of Pandemic Risks
The second wave of novel coronavirus infections that is now sweeping over Europe and the United States poses a ”considerable” risk to the business of the German luxury car maker BMW, said the German company after it reported a 10 per cent growth in its profits in the third quarter primarily driven by an increase in demand for its luxury cars in China.
Despite the latest completed quarter saw a record sale of luxury cars, the shares of BMW were sent lower on Wednesday because of the cautious outlook offered by the company.
”After a more stable phase in the economic environment in the third quarter, the pandemic is now clearly regaining momentum,” BMW said in a statement.
”If the pandemic takes an even more serious course and the global economy experiences a perceptible downturn, the risk exposure could be considerable, particularly on the demand side,” the company added.
There was a drop of 3.1 per cent in early trade in the stock price of BMW which was a worse performance compared to Germany’s blue-chip DAX index.
There was recovery in the third quarter of quarterly pre-tax profits of BMW, similar to that reported earlier by rival Mercedes, as it rose by 9.6 per cent to 2.46 billion euros ($2.87 billion), which was primarily because of an increase of 8.6 per cent in the deliveries of its luxury cars.
The company also reported a rebound in the automotive EBIT (earnings before interest and tax) margin which came in at 6.7 per cent compared to the minus 10.4 per cent reported by the company in the second quarter and the 6.6 per cent a year earlier.
“BMW beat mostly on earnings quality with auto margin recovering to year ago level,” Jefferies analyst Philippe Houchois said, pointing to prudent cost management, lower R&D spending and a rebound in demand from China.
During the third quarter, there was an increase of 9.8 per cent in the deliveries of BMW-branded vehicles which was primarily accounted for by a 31 per cent spike in deliveries in the Chinese market which helped to offset a drop of 15.7 per cent in demand for the company’s cars in the United States because of the pandemic hit.
For the entire of the current year, an automotive EBIT margin of between 0 per cent and 3 per cent would be achieved by it, the company reiterated. It however said that compared to last year, there would be a significant reduction in overall deliveries of high-end vehicles, as well as group pretax profit, despite a recovery in demand in some markets.

Christopher J. Mitchell

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