Bayerische Motoren Werke AG executives on March 20 said the company still expects an orderly Brexit and does not anticipate an increase in U.S. tariffs on vehicles manufactured in the European Union but warned that a different outcome to either event could have an effect on the carmaker's guidance for 2019.
The comments came at a press conference during which BMW said it expected pre-tax profit for 2019 to be "well below" 2018's level due to increased investments in new technologies and its mobility business and higher costs associated with complying with European Union CO2 emissions targets. CFO Nicolas Peter warned that Brexit and international trade policy constitute "additional risks" to its guidance.
"If conditions deteriorate further, effects on our guidance cannot be ruled out completely," the executive said.
Peter stated that BMW continues to "expect that there will be an orderly Brexit," but that "the preparations necessary for U.K.'s withdrawal from the EU will be an additional burden in 2019."
Even though U.K. Prime Minister Theresa May on March 20 formally asked the European Union to delay Brexit to June 30, the U.K. as things stand is scheduled to leave the bloc March 29. Doing so without an agreement would lead to a 10% tariff on cars moving between the U.K. and the EU.
BMW CEO Harald Krüger said the company has prepared "thorough scenarios for a chaotic Brexit," including temporary suspension of production at some U.K. factories, increasing stocks of vehicles and updating IT systems.
In the event of a "hard Brexit," BMW expects a "maximum four to six weeks of uncertainty, and after that it will calm down," said Oliver Zipse, head of production. CFO Peter added that BMW has planned for a low- to medium-three digit million euro amount to cope with challenges related to Brexit.
The company added that it can be flexible in where it produces its cars. For example, more than 46,000 vehicles under the MINI brand, which attracts strong U.K. demand, were produced at BMW's Oxford plant in 2018 according to Zipse. But the company also has a MINI factory in the Netherlands that could fulfill demand in continental Europe.
This flexibility is also a factor in the U.S., where the completion in February of the Section 232 investigation into the impact of automotive imports on national security raised the prospect of much higher import tariffs on cars produced in the EU. BMW's current guidance assumes no increase in tariffs, but the company, which revealed the trade war between the U.S. and China had a negative impact of about €270 million in 2018, is confident it is prepared for further uncertainty.
"We've got our largest production site in the United States, so that enables us to produce for the U.S. market," Krüger said, adding that BMW is the largest exporter from the U.S. by value.
"Of course, tariffs would hit the situation, and that's why we are in favor of free trade, but BMW is clearly in a better position than many other companies."
In early afternoon trading in Frankfurt, BMW shares were down 5.1%, or €3.85, at €71.87.