* CEO sees group pretax in 2013 on a similar scale to 2012
* Co sees 2013 car sales rising by single-digit pct rate
* Auto free cash flow to drop below 3 bln eur in 2013
* Auto EBIT margin to drop to 8-10 pct in 2013
* Shares fall 1.6 percent vs 0.8 pct DAX drop
By Christiaan Hetzner
MUNICH, March 19 BMW expects earnings
to stagnate this year as costs for 11 model launches, the
development of fuel-efficient technology and expanding
production eat up higher profits from rising car sales.
German luxury brands like BMW, Volkswagen's Audi
and Mercedes have fared better in the economic
downturn than their European mass-market peers, but BMW is
ramping up its spending on research and development of
fuel-efficient technologies to stay ahead of the game.
"We expect to report group profit before tax on a similar
scale to 2012," Chief Executive Norbert Reithofer told reporters
during the group's annual earnings conference, citing
investments in new technologies and in the company's production
In 2012, BMW posted earnings before tax of 7.82 billion
euros ($10.1 billion).
Europe remains the single biggest headache for BMW, and not
just because its market volume has plunged to levels not seen in
nearly 20 years.
Brussels has imposed on BMW a limit of 99 grams of carbon
dioxide emitted per kilometer for its new car fleet in Europe by
2020 - a goal that Reithofer argues is impossible to reach
without rolling out hybrids and electric cars throughout BMW's
"If we just used conventional powertrains, the sole way we
could achieve this target is if we only sold Minis and 1 Series
with three- and four-turbocharged cylinder engines in Europe,"
he said, noting the company would have to increase the use of
battery power to meet the EU targets.
As a result, BMW is increasing its spending on
fuel-efficient technologies, since hybrids and electric were "a
must, not an option".
"We came originally from 210 grams per kilometer and
currently have a European fleet average of 145 grams," Reithofer
said. "We need to get to 99 grams by 2020 and ... this last bit
is the most challenging, technologically speaking."
Shouldering the higher investment costs means BMW expects
free cash flow at its core automotive business to fall below 3
billion euros in 2013 from 3.81 billion in 2012, while its EBIT
margin will decline to between 8 and 10 percent from 10.9
The Munich-based company forecast volume globally would rise
by a single-digit percentage rate from about 1.85 million
vehicles sold last year, thanks to new models like the 4 Series
Coupe due in September.
With euro zone economic jitters returning, executives are
placing their hopes on rising demand in the United States and
Chinese markets to offset weakness on this side of the Atlantic.
BMW and its Chinese partner Brilliance are investing roughly
500 million euros to expand their production capacity to about
300,000 cars annually in the medium term, with another 100,000
coming on top if required.
Given BMW's growth of 40 percent in China last year, that
could be necessary, since its two local plants produce less than
half of the cars it sold.
BMW expects its sales in China to rise by a high
single-digit or low double-digit percentage rate, compared with
the 8.5 percent growth it forecasts for the overall Chinese
market. But executives acknowledged that they have
underestimated how resilient luxury car demand there is.
China has become so important that BMW has begun producing
engines in China - its first such powertrain plant outside
Europe. And analysts say it is not just volume growth that makes
China so crucial to BMW, but its profit margins as well.
"We firmly believe that China now accounts for significantly
more than 50 percent of BMW's profits," wrote Bernstein's Max
Warburton in a research note published last week, though the
company said this is far too high.
BMW shares fell 1.6 percent to 69.07 euros, compared with a
0.8 percent drop in German blue chips as a whole.