3rd UPDATE: BMW, Porsche Cautious On 2012 Profitability, Bullish On Car Sales

BMW AG (BMW.XE) Tuesday said vehicle sales and pretax profit will rise this year but stuck to conservative guidance for its operating profit margin despite saying it will sell more than two million cars in 2016, four years earlier than planned.

"This is the best start to any year we have had," Chief Executive Norbert Reithofer said.

The group, the world's biggest manufacturer of premium cars, expects higher sales of its BMW, Mini and Rolls-Royce brands this year after selling a record 1.67 million vehicles in 2011 amid buoyant global demand for luxury cars.

BMW's smaller German rival, Porsche Automobile Holding SE (PAH.XE) was also bullish about its medium-term outlook, forecasting its sports-car unit will sell 180,000 cars by 2018 up from 116,978 vehicles in 2011 as it reported a 22% rise in full-year operating profit to EUR2.05 billion. Porsche said its operating return on sales was 18.7%, confirming its position as the world's most profitable auto maker.

But company executives remained cautious about future profitability. As Porsche forecast a future operating return on sales of at least 15%, BMW Chief Financial Officer Friedrich Eichiner said the full-year operating profit margin for the group's automotive business would be "at the upper end of our 8%-10% target range" in 2012 compared with 11.8% in 2011 if strong sales growth in January and February continues. BMW had forecast the same range for 2011.

BMW's capital costs are on the rise, Mr. Eichiner said. Investment in electric cars and increasing production capacity outside Germany will increase in 2012 compared with last year.

"We will raise capacities in China, the US, South Africa and India. At the same time, we are evaluating potential locations... in Brazil, Russia, India, Korea, Turkey," Mr. Reithofer said.

The group reported lower profit for the fourth-quarter despite a record performance for the year as whole. It had released full-year headline figures last week.

Fourth-quarter net profit declined 34% to EUR804 million despite a 9.6% rise in revenue to EUR18.3 billion as launch costs for the new version of the BMW's 1-series and 3-series models weighed on earnings before interest and tax which fell 12% to EUR1.54 billion. BMW reported a 51% jump in full-year net profit to EUR4.91 billion in 2011.

BMW's conservative outlook for this year's profitability weighed on the company's shares Tuesday. The stock was down 0.4% at EUR70.78 in late trading compared with a 0.8% gain for DAX 30 index. "The market had expected 11%," one trader said, referring to BMW's margin target. Porsche's prefered stock was up 0.5% at EUR48.53.

BMW is also spending heavily to develop new engines to meet tightening environmental regulations in the EU and elsewhere as the authorities tighten standards for carbon-dioxide and other emissions.

"Looking ahead at 2015, the EU has set a new CO2 target of 130 grams per kilometer for all European cars. We are totally confident we will meet the target set for the BMW group," Mr. Reithofer said. BMW's fleet currently produces average emissions of 148 grams of CO2 per kilometer.

-By Christoph Rauwald, Dow Jones Newswires; [phone]; [e-mail]