BMW must deepen cost-cutting in order to hit targets

German carmaker BMW will deepen cost cuts after higher development expenses contributed to a 27 percent drop in third-quarter operating profit, falling short of analyst expectations as currency effects also took a toll.

Investments to develop electric and self-driving cars, as well as spending to boost production of new X5, X7 and 8-series luxury models weighed on earnings when tariffs between China and the United States and a price war in Europe were already eroding margins.

Capital expenditure will rise again in the fourth quarter, BMW said, owing to the start of production for a new version of its flagship model, the BMW 3 series.

“Additional measures will be needed to support our profitability targets,” Chief Financial Officer Nicolas Peter said in a call to discuss earnings, without giving details.

“Despite the difficult conditions, we are still targeting a free cash flow of three billion euros for the full year,” Peter added.

“In light of the current challenges, this will not be an easy task.”

BMW’s earnings before interest and taxes (EBIT) of 1.75 billion euros came in below the 1.8 billion euros forecast in a Reuters poll as higher raw material prices, currency effects, and 679 million euros worth of provisions for vehicle recalls had an impact.

Shares in BMW, whose other brands include Mini and Rolls-Royce, fell 1.9 percent to 75.44 euros by 1155 GMT.

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