The cost of launching its new 3-series car combined with higher raw materials prices and the weak dollar dragged down BMW's profits in the first quarter of the year.
Earnings before tax fell by 4.6 per cent to £549 million compared with £575 million in the same period last year.
Despite the lower-thanexpected figures, investor jitters seemed to be calmed as BMW repeated the advice it gave at the time of its annual results statement in March that 2005 profits should at least match those of last year, which hit a record £1.55 million.
Rumours that the Munich based group - currently one of the world's strongest carmakers - was about to issue a profits warning were rife around the European bourses last week.
But shares edged up slightly to 32.99 euros in early trading in Frankfurt yesterday, although one dealer declared "I don't like these figures" and predicted that the stock would fall towards 32 euros later on.
"The figures didn't come out necessarily better than consensus, but better than some had feared, which is why there's a bit of a relief rally in the share," said Fredrik Westin, analyst at WestLB.
"Personally I find little negative but also little positive in the results," he added, rating the shares "neutral".
Mr Westin said he expected to see a similar profits picture for the rest of the year even though the 3-series launch costs will disappear in the coming quarters.
BMW itself said: " Significantly higher raw material prices, currency factors and increased competitive pressure all had a negative impact during the first quarter."
Profits from carmaking fell more steeply, by 5.4 per cent, to 702 million euros (£474 million) but the overall group bottom line slipped only by a marginal 0.8 per cent to 519 million euros (£350 million).
On the sales side, BMW is racing ahead of its arch German rival Mercedes-Benz, thanks to a raft of new models which as well as the new 3-series include the 1-Series hatchback and the X3 offroader.
Overall group car sales rose by 8.3 per cent to a record 292,207 in the first quarter while motorcycle sales were 19 per cent ahead at 21,304.
Sales of BMW-badged cars rose by 7.8 per cent to 251,729 while the Oxford-built Mini ended the period ten per cent ahead at 52,694. Sales of Rolls-Royce super-luxury cars fell by ten per cent to 126.
The figures mean that BMW is now set to overtake Mercedes-Benz as the world's best selling luxury car marque this year.
Chief Executive Helmut Panke said the launch of the new 3-Series had gone " magnificently" and had surpassed the company's expectations.
He reminded analysts that the company had previously warned that revenues and earnings this year would be more exposed to external influences than had been the case in 2004.
"Nevertheless our business developed in a strong manner in the first quarter," Mr Panke said, adding: "BMW Group aims to achieve approximately the high level of earnings as in the previous year."