BMW quarterly sales better than expected, fueled by China demand

BMW AG's (BMW.XE) car sales in recent months have been better than expected, fueled by soaring demand in China, and the seasonal slowdown in the third quarter might not be as bad as anticipated, the world's best-selling luxury car maker said Thursday.

"We expect our sales performance to drive our results in the third quarter. Should these trends continue through September, we will not see the magnitude of the seasonal slowdown in the third quarter which we indicated," BMW Chief Financial Officer Friedrich Eichiner said during an investor day in China.

On Aug. 3, Eichiner had said that the strong sales growth in the second quarter could slow in the third quarter, partly due to seasonal factors.

Eichiner reiterated BMW's full-year target of more than 1.4 million vehicle sales and a margin on earnings before interest and tax of more than 5% in the auto segment.

BMW benefits from the growing appetite for luxury cars in China, with sales rise 98% year-on-year in the first eight months to 106,000 BMW and Mini cars.

China has been one of the few bright spots during the steep market slump and is now driving a faster-than-expected recovery in the auto industry. Some analysts, however, have cautioned that the strong growth rates seen in recent months won't be sustained.

China is currently BMW's third-largest market, but has already emerged as its most important sales region for its flagship 7-series sedan.

China is expected "to be the most dynamic market in the world for auto makers over the medium and long term," Eichiner said. He noted that the country "has the potential" to overtake Germany and the U.S. to become the company's largest sales region and pledged to significantly expand BMW's product portfolio. "We will also build smaller models over there," he said. BMW plans to introduce its megacity-vehicle in China in 2014, one year after its scheduled launch.

BMW currently is building a second plant in China in Tiexi with joint-venture partner Brilliance China Automotive Holdings Ltd. (1114.HK) to boost local production capacity, which currently is about 41,000 cars a year.

"With Tiexi, the capacity in all our Chinese plants has the potential to reach 300,000 units per annum by 2013," Eichiner said.

"We are following a similar strategy for China as we did for the United States. We will significantly increase local production and local sourcing. In this way, we will reap considerable profits from economies of scale," Eichiner said.

Ramping up local production to reduce exposure to currency fluctuations and to benefit from lower costs has been a broad trend among automakers in recent years. BMW's exposure to currency fluctuations is relatively big as it produces the vast majority of its cars in Germany, where its costs are in euros, but sells many of them in the U.S., the U.K. and China, where it earns dollars, pounds and yuan.

However, exchange-rate fluctuations worked in favor of BMW in recent months. With the euro relatively weaker against the dollar, earnings generated in the U.S. and China are inflated when converted into the common currency. The Chinese renminbi is effectively tied to the dollar.

"We aim to extend our current network of around 100 local suppliers to more than 160 suppliers by 2012," he said, adding that BMW also aims to ramp up its financial services operations in China.

Separately, BMW on Thursday confirmed that it received official approval to establish an automotive finance company from the China Banking Regulatory Commission.