BMW Remains Successful Despite Challenges

The BMW Group is a leading international manufacturer of premium automobiles and motorcycles with over 30 production sites worldwide Additionally, the company provides premium financial and mobility services. It has a global sales network in more than 140 countries.

Despite the challenging economic environment, BMW has remained successful. It has retained its leadership with its popular brands BMW, MINI, Rolls-Royce and BMW Motorrad.

The luxury German automaker of stylish cars such as the 8 Series Gran Coupe, the M3 sports car, and the X5 Sports Activity Vehicle has also become a strong EV player. During the third quarter of 2023, the company delivered 93,931 all-battery electric vehicles, or BEVs, more than General Motors (GM), Ford Motor (F), and TRivian Automotive (RIVN) combined.

BMW Market Watch: Performance Overview

Electric cars

While traditional automakers have larger EV businesses, only a few can compete with BMW’s sales mix, placing it in a unique competitive position alongside formidable contenders like Tesla. For example, Volkswagen (VOW. Germany), sold 210,000 BEVs during the third quarter, but that represented only 9% of total sales. On the other hand, BEVs made up 15% of BMW’s third-quarter sales, excluding its hybrid sales.

Between July and September, the BMW Group sold 93,931 fully-electric vehicles. In the year to the end of September, BEV deliveries almost doubled, rising by 92.6% to 246,867 units (2022: 128,195 units). This sales growth was generated mainly from the BMW brand, with BEV deliveries up 119.3% in the first nine months.

The company aims to electrify all of its product range, with the new BMW i5*, the Rolls-Royce Spectre*, and all three premium brands to have at least one fully-electric variant across the relevant segments. By 2024, one in five of the company’s new vehicles will be a BEV; by 2025, one in four.

BMW’s EV line-up is very similar to its traditional one, as it includes the same popular cars, but electrified. So, there are all-electric versions of the i4, i5, and i7 sedans, as well as the electric iX sport utility vehicle. While BMW’s electric cars may not be as alluring to investors to make them buy the stock, it does reassure them that the business has a potentially sustainable business in the future, as demand for gas-powered cars drops slowly.

Earnings

BMW’s cars remain pricey. Prices for new cars have gone up more than 20% from pre-pandemic levels. This has been good for operating profit margins which are anticipated to reach 11% at BMW in 2023.

Wall Street projects that margins will fall back to 9% in the coming years, pushing down earnings, which could drop to $17.50 a share in 2024 after reaching almost $29 in 2022.

But a fall in earnings doesn’t necessarily equate to a falling stock. Jefferies’ Houchois has a $116 price target on the shares, which is up 14% from a recent $101.53. This suggests that the stock can trade at seven times its below-consensus earnings estimate of $16.20 a share in 2024. And if BMW has better-than-expected margins then the stock could potentially hit $143, up 41%.

Chinese market

BMW bought a majority stake in its Chinese joint venture in 2022 and instead of reporting it as equity income it consolidated its Chinese business in its financial statements. The luxury automaker now fully controls its own stake in the world’s biggest market for new cars and new EVs.

Investment

In the next three years, Wall Street anticipates BMW to invest around 6% of sales back into the business, which amounts to almost $30 billion. The remaining amounts to an estimated $24 billion in free cash flow, with some flowing into dividends. Based on cash flow forecast in coming quarters, investors can assume $6 to $9 a share in 2024. Based on recent prices, shares could yield 7% at midpoint.

Balance sheet

BMW’s balance sheet looks quite good too. With the exception of its finance arm, which offers car loans to customers interested in buying new BMWs, the company has $20 billion more cash than debt on the books.

BMW Group: 2022 numbers

In 2022, the BMW Group sold almost 2.4 million passenger vehicles and more than 202,000 motorcycles worldwide. In the financial year 2022, the profit before tax was €23.5 billion on revenues reaching €142.6 billion. The BMW Group has a workforce of 149,475 employees since December 2022.

Values

Long-term thinking and responsible action are some of the core values that have driven BMW’s success. The company has a solid plan for the future and its strategic direction is based on sustainability and efficient resource management.

Growth

The BMW Group confirmed its leading position in the global premium segment, with sales increasing to 621,699 premium automobiles in the third quarter and 1,836,563 units over the nine-month-period (Q3 2022: 587,744 units/+5.8%; 2022: 1,747,838 units/+5.1%).

Oliver Zipse, Chairman of the Board of Management of BMW AG explained that “Our third quarter showed once again that strong products generate strong demand – across all drive technologies. This puts us right on track to meet the higher targets we set ourselves in August. In parallel with today’s successful business, we are also setting the course for the future: With the BMW Vision Neue Klasse, we presented nothing less than the future of the car at the IAA MOBILITY. In this way, we are already bringing the mobility for the next decade to the roads in 2025.”

Walter Mertl, member of the Board of Management responsible for Finance, also expressed his positive view of the future of BMW. He stated that the core business is being steered towards a long-term, profitable growth path. To achieve this, they are making significant investments by digitalizing and electrifying BMW products and bringing the entire company into a new era. By strengthening the company’s innovation capabilities and creating value for their shareholders, the company hopes to remain a leader in the industry, and with continued and solid customer demand, they will remain on the right track.

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