BMW’s Profit Outlook Positive, While Electric Strategy Worries Investors.
“Now most have adopted BEV-only long-term strategies, BMW stands out even more with this approach, and we think it is not helpful for the share price”
BMW’s profit outlook is strong, but investors worry about its determination to pursue an electric vehicle policy which also leaves room for traditional internal combustion engines (ICE) and possibly fuel cells too.
BMW’s main competitors have designed special and separate designs for their electric vehicles, while BMW has tried to combine them with ICE propulsion.
The company was also wary of complacency for the 2nd half, which promised volatility in raw materials prices and the semiconductor shortage.
BMW reported 2nd quarter net income of €4.8 billion ($5.7 billion) compared with a loss of €212 million ($250 million) in the same period of 2020 and raised its profit forecast for 2021.
BMW now expects the full year operating profit margin for its automotive business of between 7% and 9% compared with the previous 6% to 8% forecast.
Investment bank UBS described the outlook as relatively cautious and said BMW had handled the chip shortage better than most. It said BMW’s CEO Oliver Zipse, at an analysts meeting, had defended the so-called technology-open strategy and declared the company was ready for an electric future but wasn’t ready to close the door on ICE including green fuels, and fuel cells.
This stance had cost BMW some mileage on the stock market.
“Now that all direct peers have adopted BEV-only long-term strategies, BMW stands out even more with this approach, and we think it is not helpful for the trading multiple (share price),” UBS analyst Patrick Hummel said.
Skepticism with a K
“While BMW keeps commenting that its BEV (battery electric vehicle) lineup will be fully competitive (we have our doubts about ICE-derived product like the iX3 or the upcoming iX1), we think skepticism of investors about the long-term approach may not fade anytime soon, despite financial performance remaining strong. BMW’s under-representation in the important Chinese premium BEV segment as well as the high share of PHEVs (plug-in hybrid electric vehicles which we consider a bridge technology that is at its peak already this year) limit the potential for a re-rating of shares, in our view,” Hummel said.
The Wall Street Journal’s Heard on the Street columnist Stephen Wilmot pointed out that even mass market auto manufacturers like Stellantis, GM, Ford and Volkswagen had offered ambitious profit forecasts.
“BMW is the odd one out. It has historically been cautious in its guidance and apparently sees no reason to change. Likewise, it has been more reluctant than peers to throw money specially at EVs, despite developing the technology earlier than most. It hasn’t announced gigafactories. Instead it has stressed the value of flexible production, the need to clean-up the carbon-intensive EV supply chain, and even the potential of hydrogen fuel cells,” Wilmot said.
Bernstein Research analyst Arndt Ellinghorst doesn’t seem to have any doubts.
“We continue to regard BMW as one of the best operators in the autos industry. The company is highly respected by its auto, tech and battery suppliers. It has been far less volatile than pretty much all its global peers and has hardly ever lost money in any given quarter,” Ellinghorst said.
And not surprisingly, BMW was keeping a lowkey profile.
“Our performance has benefitted from strong customer demand during the 1st half of the year, enabling us to achieve significant growth. However, in the light of a number of prevailing risks, including raw materials prices and a shortage of semiconductors, the 2nd 6-month period is likely to be more volatile for the BMW Group,” he said in a statement.
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