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Deutsche Bank is bullish on beamers.
Photo via BMW.
The German premium automobile market is headed for a blowout quarter and
BMW
is “too intriguing to ignore,”
Deutsche Bank
said on Thursday, as the bank upgraded the stock and raised the target price by 17%.
Shares in
BMW
climbed 2% higher in early Frankfurt trading before giving up gains to trade around flat—ahead of rivals
Volkswagen Group
and
Daimler,
which were 1% to 2% lower. BMW stock is up 22% since the beginning of the year.
The back story. While the Covid-19 pandemic wrought havoc on car makers in 2020 and led to a massive fall in sales, BMW’s exposure to China—its largest and most profitable market—helped the 105-year-old company to rebound. Beyond the pandemic, the road ahead for BMW, like many other European car makers, will be defined by electric vehicles.
Governments instituted a pedal-to-the-metal push for greener transport last year. Incentives for consumers and punitive emissions targets for manufacturers helped make Europe the world’s largest electric-vehicle market in 2020, and the region remains a key force in the industry’s pivot away from internal combustion engines.
BMW lags behind
Volkswagen Group ,
Europe’s EV leader and the key rival to
Tesla,
as well as Mercedes-Benz-owner Daimler, but controls more than 5% of the total European EV market. BMW plans for electric vehicles to account for 50% of sales by 2030 and restructure its product range around a new class of EVs from 2025.
What’s new. German premium cars are headed for “a very strong quarter,” Deutsche Bank said on Thursday, with upscale brands like BMW set to outperform mass-market European businesses like Renault and parts of Volkswagen Group, which includes Audi and
Porsche.
Analysts led by Tim Rokossa at the bank said that while BMW lags behind Daimler and Volkswagen in its pivot to electric vehicles, the company’s momentum is “too intriguing to ignore,” especially in the U.S. The analysts also noted that the company is a “safer” pick than its German rivals with respect to environmental, social, and governance investing factors.
The bank said BMW’s chief financial officer,
Dr. Nicolas Peter,
left a positive impression on analysts following a roadshow where the management team confirmed that pricing remains strong across all markets. BMW expects deliveries to rise 5% to 10% year-over-year, with management considering the upper end of the range more reasonable, but Deutsche Bank said this guidance may actually be too conservative.
The bank upgraded BMW stock from hold to buy and raised the target price to €105 from €90. With the shares trading around €88, the analysts see the stock as having legs to run 19% higher. The analysts also said that BMW confirmed that the supply chain of semiconductors was tight amid the global shortage, but that there has been no discontinuation of production.
Plus:Global Chip Shortage Halts Volvo Truck Production. The Stock Is Tumbling.
Looking ahead. If auto investors have learned one thing in the last year, it is that the market is going crazy for electric-vehicle stocks. The hunger for EVs has spilled over from pure electric plays like Tesla and
NIO
to legacy car makers, with shares in well-positioned groups such as Volkswagen seeing a tremendous rally in the last month.
Barron’s has cautioned in the past that investors in the likes of BMW should be careful to keep an eye on valuations, and not let romantic growth stories overshadow the realities of this competitive sector. That is still true. But Deutsche Bank’s upgrade adds weight to the company’s ambitions and is a meaningful endorsement.
An added bonus is that BMW is currently safe from the global semiconductor shortage. This is more immediate good news for the stock, because manufacturing issues related to the chip shortage have wrought havoc for shares in other companies, like Volvo Trucks, which now faces production halts.
