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Outlook on the BMW numbers: More profit expected – higher prices beat lack of chips

Of the Car maker BMW like others in the industry, has to nibble on the fact that there are not enough chips available for production. But that’s not as wild with the Munich-based company: the Dax group recently increased the margin forecast for its core business. Like rival Daimler, the white and blue should also present strong figures for the third quarter when CEO Oliver Zipse opens the books this Wednesday (November 3). What’s going on at BMW, what analysts think of it and how the stock is doing.

THAT’S ON WITH MUNICH:

After the second half of the year, BMW CFO Nicolas Peter warned: The earnings dynamics would weaken in the second half of the year, and higher investments would be required for new vehicle launches on a regular basis. Last but not least, currencies and raw material prices would play a role. In any case, the industry is currently exercising patience because of the lack of semiconductors, because missing delivery quantities for the chips are reflected in fewer production and sales. In the first half of the year, Munich was still expecting to be able to sell up to 90,000 more cars a year without the delivery problems.

But at BMW they may not be in that much of a hurry to catch up in production – because at the end of September they suddenly heard from Munich that the tense delivery situation would continue to have a negative impact on production and sales in the coming months. The persistently favorable price effects for new and used vehicles are likely to more than compensate for the negative effects on earnings. Without further ado, the group raised the return prospects for the auto division for the year as a whole. However, this year BMW has been more cautious than the German competition when it comes to forecast increases due to day-to-day business.

BMW is now forecasting an operating margin of 9.5 to 10.5 percent before interest and taxes in the automotive industry for 2021. Previously, the target was 7 to 9 percent return on sales. The financial services division should also earn more – the return on equity should now be between 20 and 23 percent.

The high demand for cars in the economic recovery with a simultaneous low supply is driving up prices. Like other car manufacturers, BMW currently has few discounts because delivery times are long and customers – often companies and car rental companies – would like to have their cars earlier. In turn, high used car prices mean that leasing returns can be sold more expensively than previously thought, which pleases the financial division, which has leased cars on its balance sheet.

In any case, BMW came off comparatively well in deliveries to customers in the past quarter. While the VW group delivered a quarter fewer vehicles than in the same period of the previous year, it was only a minus of a good twelve percent across all brands at BMW. The lucrative base brand was able to limit the decline to ten percent.

At the end of last week, the Daimler Group also showed that a mere decline in sales means little for profits in the current environment. Sales of Mercedes cars and vans fell by 30 percent, sales in the division by only one percent. The bottom line is that the Stuttgart-based company earned significantly more than a year ago thanks to its strong financial services.

WHAT ANALYSTS SAY:

According to analysts, there should also have been an increase in profits at BMW. In the auto division, earnings before interest and taxes will have increased by around seven percent to 1.59 billion euros, according to estimates evaluated by Bloomberg, which corresponds to a margin of 7.2 percent – half a percentage point more than a year ago.

In total, eight surveyed experts expect consolidated sales of EUR 26.1 billion, which is only slightly less than a year ago with EUR 26.3 billion. Consolidated earnings before interest and taxes have increased by a third to 2.55 billion euros, which is largely due to the finance division. The bottom line is that the experts expect an increase in profits from a good fifth to 2.2 billion euros.

The profitability of the auto division is likely to have remained at a high level, wrote Goldman Sachs analyst George Galliers last. He even expects an operating margin in the core business of 8.3 percent. According to the expert, the decisive factor is the positive development in prices and the sales mix towards more expensive cars. Financial services and the motorcycle division should also be able to underpin the strong results from the first half of the year.

According to Bernstein expert Arndt Ellinghorst, the statements by BMW already cast a positive light on 2022. The full consolidation of the Chinese joint venture BBA (BMW Brilliance Automotive) is due in the first quarter – that remains a very positive and important event, according to the analyst after the Forecast increase. Next year, BMW will increase its stake in the joint venture from 50 to 75 percent. So far, BMW has only accounted for the local China business as investment income and not in sales and operating profit.

The analysts as a whole are undecided as to the development of the share, but on the positive side. Of 14 experts who have commented on the shares since the forecast was raised, seven recommend buying and seven holding. The average target price is a good 107 euros and thus around 20 euros above the current price.






Production of the BMW i4: One of the new e-models. (Photo: BMW)

WHAT DOES THE SHARE DO:

In view of the comparatively good news in the industry, the share price development is one of the weak points of the Munich company. Although this year the common share listed in the Dax has so far increased by a little more than 20 percent. However, other industry representatives can certainly show more, first and foremost the arch-rival Daimler with a premium of more than half. Volkswagen also does better with the preference share, especially the titles of the VW umbrella holding Porsche SE.

And so BMW is only in the upper middle field in the European sector comparison of the Stoxx 600 Europe Automobiles & Parts. Even in the Dax, BMW does not appear in the top ten places this year. At just under 90 euros, the BMW rate is only the same as in the first half of 2018 – not to mention the highs of 120 euros from spring 2015.

In the coming years it will be exciting to see how the BMW papers deal with the change in the industry towards electric drives. After the iX3, BMW is currently launching the larger SUV flagship iX and the sporty i4, two more fully electric models.

Boss Zipse has also refined the electrical strategy overall – but continues to put the strategic openness to technology in the shop window and does not want to write off fuel cells any more than combustion engines in some regions of the world. VW boss Herbert Diess, on the other hand, with a few exceptions, has focused on pure battery drives, Mercedes-Benz wants to be purely electric by 2030 wherever possible.

It remains to be seen whether investors, and above all the big professional investors from the USA, will appreciate Zipse’s direction. So far, their verdict seems clear: They are more likely to bring the money to the US electrical pioneer Tesla and thus seemingly put everything on the pure electric card. BMW (57 billion), Volkswagen (125 billion) and Daimler (93 billion) currently have a combined market value of 275 billion euros. Tesla is valued by investors at the equivalent of 1 trillion euros – and thus more than three and a half times all German car manufacturer shares combined. (dpa-AFX / gem)

Also read:

BMW boss Zipse is promoting a common operating system

BMW starts series production of the Tesla Fighter i4

Just one shift in Dingolfing: the chip crisis slows BMW down

BMW boss Oliver Zipse: “Cars are made from cars”

BMW sells twelve percent fewer cars

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Lenny Li

I started to play with tech since middle school. Smart phones, laptops and gadgets are all about my life. Besides, I am also a big fan of Star War. May the force be with you!

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