BMW announced, back in 2019, that it will be setting aside an impressive 1.4 Billion Euro provision pending the current investigation into alleged wrongdoings made by the European Commission. That was a considerable hit to the profits reported by the company but, a statement issued today by the Bavarians is optimistic that the end result of the investigation will be favorable to them.
The subject matter of the proceedings is whether German automobile manufacturers cooperated in technical working groups to restrict competition in the development and rollout of emission-reduction technologies. The legal conformity of diesel vehicles is not subject of the proceedings. BMW repeatedly said that the company is innocent of such allegations but even so, decided to set aside a considerable sum of money, in case the Commission issues a fine.
On 5 April 2019, BMW had recognized a provision of around €1.4 billion. Based on the progress of the proceedings, BMW continues to consider it more likely than not that the EU Commission will issue a fine. However, the significant limitation in the scope of the allegations has led to a revaluation of the provision. This revaluation will result in a positive effect on earnings of around €1 billion in the second quarter of 2021.
That will, in turn, lead to an increase in the EBIT margin for the Automotive segment of around one percent. That’s not all though, BMW also expects to see a significant increase in Group earnings before taxes for the financial year. The statement also mentions that if the fine issued by the European Commission is low enough, BMW wouldn’t seek an annulment in court but rather decide to move on and put this entire issue behind it. Seeing this situation unravel will be of great interest to other car makers from Germany as well and we will keep you up to date with the outcome.
