By BLOOMBERG

MUNICH • BMW AG warned earnings will fall “well below” last year’s level, and embarked on a €12 billion (RM56.85 billion) efficiency drive to offset the impact of trade conflicts and unprecedented spending on electric cars.

The shares fell the most since September after the German luxury carmaker said yesterday that pretax profit is expected to decline by more than 10% this year.

BMW is responding by stepping up a savings programme with plans to cull models, reduce development times by as much as one third and hold the workforce steady this year.

BMW’s weak outlook is a “troublesome” sign for the sector after the carmaker looked better-placed than competitors with a number of strong new models and the luxury-car market in China holding up, Bernstein analyst Max Warburton wrote in a note.

“This warning will inevitably increase worries about weaker names in the sector.”

BMW already flagged a challenging year ahead last week, saying great efforts will be necessary to push through the costly shift to electric and self-driving cars as markets fall and trade concerns mount.

The automotive profit margin will be in the range of 6% to 8% this year, below an 8% to 10% long-term target. CFO Nicolas Peter added that the guidance could fall even lower if conditions worsen.

“Our industry is witnessing rapid transformation,” Peter said. “A sustained high level of profitability is crucial if we are to continue driving change.”

BMW shares fell as much as 5.9% yesterday. The stock was down 4.6% to €72.26 as of 11:28am in Frankfurt.

BMW’s muted forecast also dragged lower the shares of luxury rival Daimler AG, which fell as much as 2.4%. Volkswagen AG declined 2.7%.

BMW is particularly hard-hit by trade concerns, with earnings suffering from extra tariffs on vehicles made in Spartanburg, South Carolina, and shipped to China.

Concerns over Brexit continue to weigh, and BMW has said it could move production of the MINI city car in Oxford to elsewhere in Europe should the UK leave the European Union without a deal. In addition, US President Donald Trump has threatened to slap levies on Europeanmade cars exported to the US.

The struggles are adding to challenges from higher spending on new electric cars, while efforts to comply with stricter carbon emissions regulation will also drive up the manufacturing cost.

Currency swings an higher raw material prices will have have a medium- to-high three-digit million euro negative impact, BMW said.

New models like the full-size BMW X7 SUV and the revamped 3-Series sedan will help boost business in the second half of the year to help deliver growth in all major sales regions, BMW said. The carmaker’s deliveries have dropped 2% through February as the European market declined for a sixth straight month.

China, BMW’s biggest market, is expected to see “solid” growth this year, head of sales Pieter Nota said. — Bloomberg