BMW (NASDAQOTH:BAMXF) didn't follow the recent trend found in the major automakers, where profits were increasing as the automotive industry continues to rebound. BMW on Tuesday posted third-quarter pre-tax profits that fell 3.7%, to $2.6 billion, missing expectations, and sending the stock down more than 3.5% initially.
Its automotive earnings plunged even lower, down 6%, to $2.09 billion, and its profit margins declined 60 basis points, to 9%. While its bottom line was taking hits from capital expenditures (more on that below), a good sign for BMW was that its third-quarter sales rose 11%, to more than 480,000 vehicles -- led by strong demand of its 3-Series lineup.
One of the reasons for its declining profits is its heavy investing in its electric vehicle lineup, with vehicles such as the i3. BMW said it budgeted roughly 7% of its revenues for capital expenditure, but now the company estimates to exceed that target. That caused BMW to lower its fourth-quarter profit estimate with the expectation of this spending on new vehicles to continue. However, it still expects full year pre-tax profits to be in the same range as last year.
"Due to high levels of expenditure for new technologies and models as well as investment in the production network, profit before tax for 2013 should be on a similar level with the previous year," said CEO Norbert Reithofer, according to IndustryWeek.
Ultimately, this heavy investing in its vehicles should bode well for revenue and sales increases going forward. BMW plans to launch 25 new models through 2014, and the i3 will go on sale this month in Europe before its launch in the U.S. and China next calendar year.
Fool contributor Daniel Miller has no position in any stocks mentioned. The Motley Fool recommends BMW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.