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China, Europe Outlook Mean Even Germans Might Be Hurt

BMW Targets Revised, But VW Remains Aloof Thanks To MQB

The German premium manufacturers have been immune to the troubles generating huge losses at mass car makers, but worries about China and Europe’s economy are now beginning to infect even the likes of BMW.

Morgan Stanley has recommended investors reduce their holdings of German car manufacturers’ shares because the boom market of China is showing signs of softening prices, rising incentives, and shorter or stable waiting lists.

“Our prime concern however remains not China, but Europe. We expect weak E.U. pricing to drive a new downgrade (of stock recommendations) cycle after second quarter results. Auto (earnings) growth expectations into 2012 and 2013 are already amongst the highest in the market, and earnings revisions have only just started to rollover. We think cuts have further to go as weaker pricing undermines confidence in estimates that remain near record highs,” said Morgan Stanley’s Stuart Pearson in a report.

“Right now, earnings estimates remain at or close to record highs for the German manufacturers, but close to record lows for the mass manufacturers,” Pearson said.

Morgan Stanley is even cutting its estimates for might BMW.

“We fear a tougher pricing environment and peaking (BMW) product cycle leave margins at risk,” he said.

“We stay overweight VW for the hidden value we see in its MQB platform, and update estimates for the Porsche AG acquisition,” Pearson said.

Neil Winton –July 15, 2012

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