BMW attributed part of its Q2 earnings drop to the cash it spent on the new i3 city car.

Despite a double-digit sales gain in the United States and China, BMW posted a disappointing 8.8% drop in earnings before interest and taxes in the second quarter. Revenue for the quarter was up 1.8%.

The earnings decline is being attributed to the sluggish European economy where cars sales are at a 20-year low and capital outlays to expand factories and produce carbon-fiber parts for its first electric car. BMW’s EBIT fell to 2.07 billion euros from 2.27 billion euros, the company reported.

BMW CEO Norbert Reithofer said the German automaker would continue to invest in new technology in an effort to make the company’s cars cleaner and greener.

“We continue to enhance the efficiency of our conventionally powered vehicle range with our Efficient Dynamics program,” Reithofer noted in a conference call. “Since 1995, the BMW Group has reduced its fleet CO2 emissions faster than any other European car company.”

He added that the company must find the sweet spot between environmental responsibility and profitability.

“We must continue investing in the electrification of our vehicles. But in order to do so, we need to remain profitable. We want to continue our success in the current business year,” he said.

BMW’s goals for 2013 include: new record sales at the Group-level, a pre-tax profit similar to the previous year’s level and an EBIT margin for the automotive segment within maker’s stated target range of 8 to 10%.

“After the first six months of 2013, we remain on track to achieve our goals for the year as a whole,” he said.

In the first half of 2013, BMW sold more than 954,000 vehicles around the world. That’s up 6% on figures for the first half of 2012. The company sold more BMW, MINI and Rolls-Royce vehicles than ever before in this period.

Reithofer noted pre-tax profits reached more than 4 billion euros, which is very similar to what BMW achieved in the same period last year, while net profit rose to more than €2.7 billion.

In America and Asia sales were up in the first half of this year but in Europe sales remain at a similar level to last year’s.

Reithofer added overall conditions remain challenging in a number of European markets. A tougher economic climate means tougher competition – in the premium segment as elsewhere. We are countering these challenging developments with attractive new models.

Reithofer also said carmakers have to prepare for the changes looming ahead for the car business.

(Click Here to read about the unveiling of BMW’s new i3 city car.)

“Today more than ever before, our industry is undergoing dramatic change. New technologies, business fields and service offerings for customers are opening up new perspectives and growth opportunities. This fundamental transformation requires innovative strength, flexibility and new ways of thinking.

(European car sales plunge to 20-year low. For more, Click Here.)

“We showed you what we mean by Revolution when we unveiled the BMW Group’s first all-electric vehicle in New York, Beijing and London – simultaneously. With the BMW i3 we are tailoring Sheer Driving Pleasure to suit the needs of cities and megacities in the 21st century. For us, the BMW i3 is just the first step in the Revolution.

“The next step comes in 2014. That’s when our BMW i8 plug-in hybrid, with a three-cylinder petrol engine, reaches the market,” he added.