At first glance, the Munich car company makes BMW (WKN: 519000) almost outstanding business. Sales in the first half of the year are almost 20% higher than in the previous year at EUR 65.9 billion. BMW shares gained EUR 13.2 billion during this period, as the company recently announced when presenting its quarterly report.
But behind the beautiful facade it is crumbling. And by that I don’t mean that the bulk of the gain is due to a €7.7bn valuation effect from the full exposure of the Chinese joint venture Brilliance. I can hardly blame the BMW share for special effects in accounting.
Instead, there are three much larger issues with long-term implications that look set to hit BMW stock next year.
BMW share: Low margins despite boom
Almost all car manufacturers are currently benefiting from the shortage of chips and other components. Because the demand is consistently high. This allows manufacturers to prioritize the high-priced and high-profit models and give fewer discounts.
But the BMW share does not quite manage to capitalize on this special boom. The operating margin in the automotive business was 8.2% in the second quarter of 2022. That’s not enough for a premium manufacturer. For comparison: At Mercedes-Benz (WKN: 710000), the Cars and Vans divisions achieved a combined operating margin of 13.4%.
Now there are increasing signs that the boom is coming to an end. In the second half of the current year and in 2023, the supply of computer chips will normalize. Then the discounts will return and customers who have been waiting for their entry-level and compact models will want to see their cars. That could put some serious pressure on BMW stock gains.
Not only profit, but also sales problems
But it’s not just the profit that’s lacking, it’s also the number of items. The management of the car manufacturer capped the sales outlook for the BMW share during the presentation of the quarterly figures. Until recently, sales in Munich were still expected to be at the previous year’s level. But now management expects sales to be slightly below the 2.4 million vehicles it was able to achieve in 2021.
Meanwhile, Mercedes-Benz is forecasting sales to be slightly up year-on-year, and Volkswagen sees signs of a recovery in volumes in the second half. Something doesn’t add up here. falling numbers and falling profit margins per car would be very bad news for BMW stock.
The electric attack will not start until 2025
For a long time, BMW didn’t dare to fully rely on electromobility. Therefore, the market launch of electric cars on a platform developed purely for this purpose will not take place until 2025. Five years later, this “New Class” should account for half of sales.
The BMW share is already running out of time when it comes to electromobility. The new class got to bound to be a success.
At the same time, some competitors work much faster. Already today Tesla (NASDAQ:BMW) is making electric cars at a production rate similar to what BMW is targeting for 2030. At the same time, Chinese players who should not be underestimated, such as BYD (WKN: A0M4W9) into the European market and will make life difficult for BMW shares.
The Stromer from Munich are currently doing well in the registration statistics. But it will be really exciting next year, when the promotion of electric cars will be abolished and the conditions in the car industry will normalize.
The article BMW Stock: The Most Overrated Company on the German Stock Market first appeared on The Motley Fool Germany.
Our top stock for 2022
There’s one company whose name is getting a lot of buzz from analysts at The Motley Fool these days. It’s for us THE top investment for 2022.
You could also benefit from it. To do this, you first need to know everything about this unique company. So now we have one free special report compiled, which introduces this company in detail.
Click here to download this report now for free.
Christoph Gössel owns shares in Tesla. The Motley Fool owns shares of shares of and recommends BYD and Tesla, and recommends BMW.
Motley Fool Deutschland 2022