BMW Shares Fall After It Cuts Profit Forecast.
“BMW struggles for differentiation in an increasingly tough environment”
BMW shares dived almost 5% after it warned profits will fall in 2019 and announced a 12 billion euro ($13.6 billion) savings plan to offset possible damage from trade conflicts and pay for research on electric cars.
Investors worried that BMW’s problems were likely to be worse for the rest of the industry.
Investment researcher Evercore ISI said the guidance from BMW, for a 10% fall in pre-tax profit in 2019, was worse than expected. Evercore ISI said BMW’s forecast of profits of between 6 and 8% compared with its expectation of 7.7%. BMW’s previ9ous profit forecast range was between 8 and 10%
Evercore ISI’s report was headed “Where is BMW’s product momentum”.
“Questions will arise if and when BMW’s product momentum will finally improve. With a new 3 Series and an almost fully renewed SUV range plus and brand-new X7, BMW will be at the sweet spot of its product cycle in ‘19. This should drive higher margins despite all well-known sector headwinds,” Evercore ISI analyst Arndt Ellinghorst said.
“The company has long indicated an improvement of volume/mix/pricing and if this year doesn’t see support, investors will become even more sceptical regarding the substance of BMW’s product,” he said.
Ellinghorst said the fear of a tariff war with the U.S. remains a major risk for BMW. He estimated a worst case scenario of a 25% tariff could cost BMW up to 1.7 billion euros ($1.9 billion) in lost profit.
“BMW struggles to differentiate itself in an increasingly tough industry environment. Consumer confidence is fading in most markets, regulatory costs are more than proportionally impacting premium OEMs, trade disputes with the U.S. are more likely than not and the costs to keep up with the convergence of Auto and Tech aren’t coming down,” Ellinghorst said.
If BMW’s in trouble…..
Bernstein Research analyst Max Warburton wondered if such a strong player as BMW was in trouble, it was likely to be much worse for the rest of the industry.
“If BMW is facing this kind of difficulty and feels the need to guide this cautiously, what does this tell us about the rest of the sector? Mercedes has far fewer new products. Audi seems to be facing more pricing pressure. VW is surely raising its development spending faster. The cost of new CO2-compliant technology is inevitably more burdensome for lower margin mass market OEMs,” Warburton said.
“Yes, BMW has lost some of its stand out, industry leading characteristics in recent years but it is still arguably the strongest, highest quality company in the sector. So this warning will inevitably increase worries about weaker names in the sector,” he said..
Meanwhile the European 600 Auto Stoxx index slid nearly 2%.
“BMW is not a company that likes to overpromise and under deliver. Might the new 6-8% margin guidance be very conservative and ‘beatable’ in H2? Possibly, but we won’t know for some time, and meanwhile BMW just added to the narrative that the whole sector is facing ever greater pressure,” Warburton said.