Bernstein upgrades BMW to Outperform as automaker is determined to sell EVs in China

Bernstein upgraded BMW (ETR:) to an Outperform rating (From Market Perform) with a 12-month price target of $110.00on the German automotive stock.

“BMW is the company in our coverage you can rely on to outperform its peers when market conditions get tough.” Wrote analysts at Bernstein in a note.

BMW reported largely in-line 3Q/23 earnings results, missing EPS estimates by $0.27. Bernstein believes that the miss could be explained by -€289m in interest rate hedging transactions, which affected PBT.

The company also added detail to mid-term guidance, giving investors more confidence in BMW’s ~€7bn FCF target, and the shareholder distributions it will fund.

BMW’s shares have declined -15% since late July, in-line with the broader European autos sector. Increasing worries on a delayed recovery and increasing competition in China have been a significant headwind for the sector.

However, the German luxury automaker believes that “without selling BEVs in China, there can be no growth.”

BMW has responded to market trends by eliminating the price premium on a majority of its Battery Electric Vehicles (BEVs), yet it continues to experience favorable contributions from BEV sales.

This strategy has facilitated the expansion of the company’s market share in the electric vehicle sector in China, leading to a volume growth of +3.4% YoY over the course of 9 months. This growth is in line with the broader trends in the Chinese market (+3.6%) and exceeds that of its German counterparts.

Bernstein maintained its 2024 forecast at €11.5bn net income and €7.3b FCF. BMW’s reintroduction of the Group EBT margin target of over 10% is expected to enhance investor confidence in the company’s sustained earnings and FCF performance.