BMW, which opened a new tab, said on Wednesday it expects a slight drop in pre-tax profit this year due to higher research and development, manufacturing, and personnel costs, with a decrease in used car prices also contributing to the decline.

The Munich-based automaker reported a fall in its first-quarter profit margin in its automotive segment as persistently higher costs weighed on its bottom line and demand for luxury cars in China remained muted.

The German premium automaker’s pre-tax margin in the car segment fell to 8.8% from 12.1% a year earlier and below the 9.2% expected by analysts in a company-compiled consensus.

First-quarter revenue dropped slightly despite a 1.1% increase in car sales.

During the pandemic supply chain shortages meant automakers were able to charge higher prices for their vehicles and were able to sell cars coming off lease for more because of strong demand for used cars.

BMW is investing heavily in electric vehicles and model revamps across its line-up and expects record spending this year, up from 7.5 billion euros last year.

“This year, it will be more important than ever to maintain our strategic course,” Chief Financial Officer Walter Mertl said in a statement. “The investments needed in the digital and electric future of our company are the highest they have ever been.”

BMW rivals Mercedes Benz opens new tab and Porsche (P911_p.DE), opens new tab are also spending heavily as Germany’s automakers try to tackle growing competition in the EV market from China and Tesla (TSLA.O), opens new tab.

First-quarter group pre-tax profit fell 18.9% to 4.1 billion euros ($4.40 billion) but beat the 3.9 billion expected by analysts.

Sales of fully electric cars rose 28% to 83,000 vehicles in the quarter.