(Adds detail on development costs in fourth paragraph.)
BERLIN–BMW AG (BMW.XE), the German luxury car maker, Thursday reported a strong rise in sales and earnings in the first three months of the year, largely due to one-off gains as higher development costs weakened margins in the core automotive division.
The weaker profitability of the automotive division comes as BMW boosts investment in technology to build self-driving electric cars and a raft of new vehicle models. BMW is in a tight race with Daimler AG’s Mercedes-Benz brand for sales leadership in the premium car market and lost the crown to Mercedes in 2016.
The company said net profit rose 31% to 2.15 billion euros ($2.34 billion) in the three months to the end of March. Sales revenue rose 12.4% to EUR23.45 billion on the back of strong demand for its X1 and X5 SUVs and the first full month of sales of the new 5-Series and its flagship 7-Series sedan.
BMW reported that higher development costs of new vehicles and investment in new technology for self-driving cars put pressure on margins in its core automotive division. Margins fell to 9% from 9.4% a year ago.
The company kept its 2017 guidance unchanged, saying it expected a slight increase in profit in 2017, with a margin for earnings before interest and taxes of 8% to 10% in its core automotive operations.
BMW still trails rival Mercedes in sales of premium vehicles. BMW branded vehicle sales rose 5.2% to 503,445 vehicles in the first three months of 2017; Mercedes sold 560,625 vehicles in the same period, up 16%.
The Munich-based car maker also announced that its new flagship product, the futuristic self-driving electric iNext sedan will be built at its main production plant in Dingolfing and is due to launch in 2021.
BMW published preliminary results last month that beat analysts’ forecasts.
BMW’s earnings before interest and taxes jumped to EUR3.01 billion in the first three months of 2017, up from EUR2.37 billion a year earlier. This was driven by strong sales of its new 5-Series sedan, higher gains from its China joint venture and the sale of a 15% stake in digital mapmaker Here to Intel Corp.
Write to William Boston at William.Boston@wsj.com