BMW AG posted a drop in profit by 2.5% during its first quarter as prices of its cars fell amidst a battle with Germany luxury carmaker Mercedes Benz to keep its status as the biggest maker of luxury vehicles in the world.

The price of vehicles made by BMW dropped by 5.9% to 33,700 euros or $39,100 during the quarter as the demand for less expensive cars such as the X1 overwhelmed growth for its revamped sedan 7-series.

The shift has contributed to a drop in earnings prior to taxes and interest to 2.45 billion euros, which fell short of expectations of analysts of 2.52 billion.

There is a lot of growth amongst compact cars such as its SUV X1, which is not amongst the larger, expensive cars, said an analyst in Paris.

BMW has grappled with the mounting competition from rivals like Mercedes that have been in the industry years and by newcomers such as Tesla Motors, as growth slows due to an aging lineup of models.

Amidst plans for an electric, self driving car to at some point supplant its 7-series sedan as the flagship model, BMW is increasing spending on technology to regain its edge as rival Mercedes increased its deliveries at twice the rate as BMW during the quarter.

BMW was down 3% in Tuesday trading. BMW stock has tumbled by 19% this past year, which values the business at over 51 billion euros.

Prices have come under pressure in particular for sedans across the U.S. said Freidrich Eichiner the CFO at BMW during a conference call with reporters.

The German based company is increasing its production of SUVs including its X5 at its Spartanburg, South Carolina plant, to match the shifts in demand by customers.

While BMW X1 deliveries surged by 68% to over 51,000 vehicles, the 7-series next generation struggled trying to make headway against the Mercedes S-Class.

Sales of the flagship sedan of BMW sedan reached 10,585 vehicles during its first quarter, less than 50% of the S-Class deliveries.

BMW stuck to its forecast for an increase in pretax profit for the full year, as the growth in auto markets worldwide will offset the high levels of expenditures for the new technologies, significant competition and increased personnel expenditures, said company officials.

Pretax profit for the first quarter was up by 4.4% to just over 2.37 billion euros.

The maker of Rolls-Royce, Mini and BMW is looking for record sales for 2016, which would be the seventh consecutive recorded.

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