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BMW Flexes Technology Muscles To Impress Investors

BMW Flexes Technology Muscles To Impress Investors.

“We came away impressed (with) an extremely advanced modular strategy for any powertrain engineering”

BMW’s recent financial performance disappointed investors, but a visit to HQ in Munich to showcase its vision of the future went some way to restoring some investors’ confidence.

BMW’s electrification strategy has come under pressure for not being adventurous enough and losing its head-start gained with the little i3 electric vehicle. BMW’s policy of using similar engineering across all future modes of electrification, autonomy and traditional internal combustion should have been replaced by separate platforms, critics said.

Barclays Equity Research was impressed by what it saw.

“We came away impressed that the strategy that the market currently believes to be to be too ’boring’ is actually an extremely advanced modular strategy for any powertrain engineering. Not only do BMW have the capabilities in-house to meet any penetration requirements for EV’s (electric vehicles), whether they are PHEV (plug-in hybrid) or BEV (pure battery electric), but these cars can also be best-in-class,” said Barclays analyst Kristina Church.

BMW, in a presentation at the meeting, said it was expanding its electric range adding smaller and high-end cars and SUVs. This will involve new electric “i” designations such as i1 through i9, and iX1 to iX9. An i5 BMW has been expected for some time.

BMW’s next EV will be a variant of the new X3 called iX3 to be launched in 2020, CEO Harald Krueger said.

Sneak preview
Investors were also given a preview of 2018 launches.

“This may provide the market comfort that the mix opportunities for the next two years are stronger than 2017 volumes might predict. With a focus on attractive new X-models such as the new X2 and renewed X4 and the 7-seater X7 to come in 2019. As well as a refocus on performance M-models with the M5 renewal, new 8-er etc, we think BMW might see more mix and price opportunities in the profit bridge than peers,” Church said.

According to Citi Research, BMW is still unsure what proportion of the 15 to 25 per cent of electrified sales in 2025 will be plug-ins or full electric.

“Their response is to use the same platform for ICE, PHEV and BEV vehicles, rather than developing separate architecture for EVs like Mercedes and VW in order to be able to accommodate the uncertainty of future EV demand. This may be a sensible approach, but BMW concedes that if EV demand grows beyond 25 per cent they will have to consider a dedicated line for electric powertrains and we argue a  modified platform doesn’t fully exploit the packaging advantages of a BEV,” Citi Research analyst Michael Tyndall said.

Tyndall said he was confused by BMW claiming its strategy was more cost effective, as R&D costs continue to rise.

Bold
Tyndall quoted BMW CFO Nicholas Peter as saying it was transforming into a tech company.

“A bold statement, but until demand improves it is not clear when this will translate into earnings growth and when BMW stock will be rewarded,” Tyndall said.

Last month BMW was overtaken in the profitability race by rivals Audi and Mercedes, and investors worried this may be a long term trend.

BMW reported third quarter profits fell 5.9 per cent to €2.42 billion compared with the same period of 2016. Earnings before interest and tax (EBIT) slipped 3.2 per cent to €2.3 billion. The operating profit margin dipped to 8.3 per cent from 8.5 per cent a year earlier, just within its 8 to 10 per cent long range target. Meanwhile Audi recently reported an 8.9 per cent margin and Mercedes 9.2 per cent.


 

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