German car giant BMW (EUREX: BMWE.EX - news) fell short of expectations in the third quarter as spending on new models weighed on earnings Tuesday, but the luxury automaker still lifted its performance targets for the full year.

Between July and September, net profit at the group shrank 1.8 percent year-on-year to 1.8 billion euros ($2.1 billion), well short of the 1.95 billion euros predicted by analysts.

Operating, or underlying profit also fell 3.2 percent, to 2.3 billion euros, on the back of revenues up 0.3 percent at 23.4 billion.

The slightly disappointing results come as the group is "investing substantially in tomorrow's mobility," chief executive Harald Kruger said in a statement.

Meanwhile, unit sales of BMW, Mini and Rolls-Royce cars increased 1.2 percent, to 590,415.

Sales were driven by the success of the new BMW 5 series as well as brisk demand for the group's popular X1 compact SUV, the group said.

Like other German carmakers, the Munich-based firm is scrambling to catch up with competitors in high-tech fields like electric cars and autonomous driving.

The group expects to sell more than 100,000 hybrid or full-electric vehicles in 2017.

Meanwhile, Kruger highlighted 400-million-euro spending on expanding BMW's research centre to 5,000 employees and the opening of an autonomous driving centre with partners including chipmaker Intel (Euronext: INCO.NX - news) .

The group's closely watched operating profit margin edged down to 8.3 percent of revenue from cars in the third quarter, from 8.5 percent a year earlier.

BMW said it will continue to spend heavily on research and new models in the fourth quarter, while it warned that a "politically volatile environment" worldwide could affect sales.

- Recall woes -

Looking ahead to the full year, BMW upped its forecast to a "solid" increase in underlying profit from 2016's figure, where previously it had called for a "slight" boost.

It added that it expected its profit margin for the full year to remain within the 8 to 10 percent target range.

The confident outlook comes just days after the German titan was buffeted by a mass recall of some one million cars in North America due to potential fire risks.

BMW has warned the recall could possibly spread to other countries as well.

The company is also the target of an EU antitrust probe into alleged collusion between German carmakers, and saw its Munich headquarters raided by investigators last month.

BMW shares shed 2.67 percent to trade at 87.57 euros by 1145 GMT, underperforming the DAX index of blue-chip shares which was up 0.04 percent.

source: AFP