(FinancialPress) — BMW will continue to invest heavily in innovation – which is denting its profit, and forced the company to to place a guideline of slowing revenue for the upcoming quarter in their Q3 financial report, published last week.
For more than a decade, BMW remained as the frontrunner in luxury car sales. The position was overtaken by Mercedes-Benz in 2016. As could be expected, BMW did not take the dethroning lightly, and shortly thereafter released the company‘s biggest new product rollout ever. It encompassed 40 new and/or updated car models. Also, it has been pouring money into research & development as a means to make upcoming releases “future-proof“, with features such as internet-connected cars becoming available.
However, last week’s report shows that all the additional spending is biting into BMW‘s margins to a point that puts its own below main competitors Mercedes and Audi. Not only that, but its revenue will also be affected overall – reporting a lowered forecast for 2017 in its main car-manufacturing business. Several factors come at play for this outcome – one of them being that the strengthening of the euro made BMWs more expensive for non-eurozone customers, thus causing a dip in sales.
While initially off-putting for investors, the lowering margins are a sign of a typical investment cycle – which is necessary to remain competitive and up-to-date in the long haul. In the near-term,however, and added to the factor of lagging sales, it makes for understandable discomfort among investors – who are often focused in the shorter term. This showed on the day of the report, as investors that were unhappy to see profits dive, had the company’s stock down 2%.
This could be a display of things to come, as traditional carmakers will have to make extra efforts to remain competitive against the likes of Tesla, and with the incursion of Google into the field with heavily tech-oriented products such as electric and self-driving cars.