BMW Seems To Have Avoided VW Diesel Taint.
“It’s possible VW may not prove to have been the only one to have breached test rules globally, it seems BMW has not”
As auto makers sought to distance themselves from Volkswagen’s self-confessed diesel emissions cheating, BMW emerged as untainted, at least in the judgement of some investment banks.
“Despite last week’s press report resulting in market concerns on BMW’s diesel emissions compliance, we believe the company is actually ahead of peers in terms of NOx emissions and already prepared for real life testing and is therefore ahead of the competition in terms of future spending needs,” Barclays Equity Research analyst Kristina Church said in a published report.
As VW’s share price melted down on world stock markets – by the end of September after admitting it duped the U.S. EPA’s clean diesel rules – it had dived 40 per cent – BMW had shed a relatively modest 11 per cent, while Daimler presumably still had its doubters with a loss of 17 per cent.
Morgan Stanley analyst Harald Hendrikse agreed.
“Although it is possible VW may not prove to have been the only (manufacturer) to have breached test rules globally, it seems BMW has not,” Hendrikse said.
Investment researcher Evercore ISI, reacting to a report in Germany’s Autobild that maybe the BMW X3 diesel had worse emissions than the VW Passat, commented that this was a magazine not an official test body, BMW confirmed its emissions software didn’t detect testing, and quoted a couple of investigations showing BMW was one of the strongest performers under real world testing.
“BMW’s share price reactions show how nervous the investment community is with respect to Diesel engines, compliance and future regulation. Thank you VW,” said Evercore ISI analyst Arndt Ellinghorst.
The industry now nervously awaits moves by regulators in Europe, the U.S. and China to perhaps tighten up emissions and fuel consumption rules.
Barclays Church said BMW has already “future proofed” itself and is prepared for this.
Leader of the pack
“We see them as the leader of the pack in terms of emissions compliance and with a 2016 estimated growth looking secure due to product momentum, we believe the stock has been unfairly penalised in recent weeks by a combination of China worries and emissions contagion. “We believe BMW will be seen to the (manufacturer) least affected by the likely upcoming changes to emissions regulations and potential also diesel penetration,” Church said.
Morgan Stanley’s Hendrikse said investors are worried about the future of diesel engines, but BMW highlights the fact that 2020 European CO2 targets can’t be met with modern diesel engines, which BMW claims are 15 to 20 per cent more CO2 efficient than petrol alternatives. He cites various so-called “headwinds” for BMW in the form of global demand peaking, emerging market sales diving, and higher CO2 and borrowing costs. Despite this, he still recommends investors hold on to their BMW shares.
“Although we see plenty of cyclical risks, any improvement in GDP/China sentiment could see BMW (share price) recover 15-20 per cent in our view. Without cyclical improvement, we think BMW outperforms a falling sector. As it has done previously. Overweight,” Hendrikse said.