BMW unveils new U.S. built X4, as profit growth runs out of steam

German luxury manufacturer BMW released pictures of its new X4 SUV to be built in Spartanburg, S.C., as investment bankers scaled back their estimates for the company’s global profit growth.

The X4 looks like a scaled down version of the visually divisive X6 SUV and is described by BMW as a Sports Activity Coupe, even though it has the usual amount of doors for an SUV. The X4 will be launched on the market in 2014. BMW revealed no details of engines or prices.

Meanwhile BMW’s profit growth is slowing down, but the bottom line will still show an impressive return for investors in 2013, despite big problems in Europe and worries about China.

In 2012, BMW’s operating profit margin was 10.6 per cent after 11.8 per cent in 2011, and the company expects this to decline slightly in 2013 to between eight and 10 per cent. Given that this is the range BMW has set for medium term profitability, investors were sanguine, not least because in 2013 capital expenditure for its upcoming “i” electric vehicles is hitting a peak. BMW will launch its little i3 electric city car later this year, and the i8 plug-in hybrid super-car in 2014. BMW also says it will introduce a total of 25 new models by the end of next year.

Credit Suisse analyst Erich Hauser sees this slowing in profit growth as impressive.

“BMW’s outlook for 2013 might not represent great performance relative to its recent track record but represents great performance in our view given the environment,” Hauser said.

Some investors were a bit more cautious.

Citi Research analyst Harald Hendrikse said slower global and especially European growth will inhibit BMW, as will increased competition which will pressure profit margins. The investment plan will increase by up to $1.3 billion in 2013.

“With China operating margins likely to slowly normalize also, we believe that guidance for 2013 for flat Automotive profit is likely a tougher target than some investors believe,” Hendrikse said.

Bernstein Research analyst Max Warburton said BMW still has the best investment case among German auto manufacturers.

“BMW looks in good shape, with best in class growth in China and is probably less exposed to whatever is going wrong in Germany,” Warburton said.

The German car market is in free-fall at the moment, with sales dropping 17 per cent in March after falling 10 per cent in February and eight per cent in January.

“BMW faces many of the same problems as Mercedes and VW/Audi – a slowing German/European car market, U.S. pricing pressure, mix shift to smaller vehicles, higher investment needs as well as a negative currency environment (there was a tailwind of $1.3 billion in 2012). However we see BMW as best placed amongst the German car makers to cope with these challenges and expect it to continue to deliver strong earnings,” Warburton said.

BMW builds the X5, X6 and X3 SUVs in Spartanburg. The compact X1 SUV is built in Germany and China.

 

 

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Neil Winton
Neil Winton writes the European Perspective column for Autos Insider. He was Reuter's Science and Technology Correspondent and European Auto Correspondent before setting up as a freelance columnist and web site publisher, writing about the European automotive industry and its products. Neil can be reached at neil.winton@btinternet.com.