Should You Invest in BMW Shares?

There’s an ongoing debate going on in the high offices of Wall Street and other regions in the world where people make a living buying and selling shares: should you or should you not invest in BMW?
BMW 1 photo
Photo: Screenshot from Youtube
The background of this debate comes from the recent developments in China and Europe. Ever since the crisis hit back in 2007, Europe’s auto market was on a dangerous slope, at times reaching the same levels recorded back in the 1980s. The sales were hit the hardest and they, in turn, hit the jobs and the industry (with its adjacent branches) as a whole.

Everyone expected things to turn around but so far, the market sure seems to take its time. Variations were recorded and increases as well both in demand and sales but not to the extent that huge manufacturers expected.

Some smarter companies figured out that Europe won’t be making a comeback too soon and looked for ventures elsewhere. That’s how China came into the spotlight and every major manufacturer out there started investing in the Asian market that was on the rise.

Yes, was! That’s because signs are showing that the growth rate is starting to cool down. There are plenty of millionaires in the communist country at the moment but sales are starting to cool off, finally.

Could that endanger BMW?

At the moment, China is the biggest sole market for the German manufacturer (excluding the EU that, even though it is considered one market is comprised of several different countries), overtaking the US in recent years. That’s a fact.

It’s also a fact that the biggest profits come from there due to the prices BMW chooses in the communist country, to maximize its gains. But other factors also chip in, so a slowdown in China’s rate of intake is not necessarily reason enough to abandon ship.

It all depends on what side you choose

Various analysts already spoke their minds regarding BMW’s status at the moment. In a statement for Forbes, Laura Lembke, an analyst for Morgan Stanley said that there’s no need to worry and that the progress the Munich-based company recorded in the EV field will make sure they thrive in the future as well:

BMW is well on track to meet future CO2 (carbon dioxide) targets. Industrialization of lightweight carbon-fiber construction should protect BMW from undergoing the same negative mix shift to small cars as peers. China is more opportunity than risk. We expect growth and margins to moderate (there), but BMW has built a strong franchise with a highly profitable JV (joint venture) in a market that remains underpenetrated with luxury cars. Fears of a downside risk look overdone.”

On the other hand, Credit Suisse analyst Mike Dean is worried about China and the situation in Europe that seems to be degrading instead of improving.

He claims that the effort BMW will have to put in to stay competitive against the likes of Jaguar, Mercedes-Benz and Audi in both Europe and China will take a toll. The main problem? Aging models in the blue and white roundel range, an issue that we also pointed out every time we reviewed a model.

BMW is making amends

Apparently the Bavarians know this and they will start rolling out newer models by the quarter-year. In 2014 alone we saw the 4 Series, 4 Series Gran Coupe, 2 Series Coupe, 2 Series Convertible, M3, M4, X4, X6 and 2 Series Active Tourer models go on sale. Add the i range to that and you are already starting to see what we mean here.

As we wrote earlier, that’s just the tip of the iceberg as more models are going to come out, starting with the new F48 X1 and 7 Series and going up to the X7 and possible X8.

Therefore there’s no need to worry?

Well, that’s what the actions of BMW seem to say. However, a recent report says that one key investor just placed 3.33 million preference shares on sale for €60 ($76) a piece. Those are amazingly low prices as BMW shares usually go for €80 ($101) to €95 ($120). And that’s for the common shares. Hopefully, this move won’t hit the German company harder than it has to, even though we’ve been seeing their common share prices go down since July, when one was estimated at €95.51 ($121.5).
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