Santander Company and Investments | Car volumes of the group BMW (A2 e, A e) it fell slightly, by 0.9% yoy, in 3Q22 to 587,000 units as the constraints of the supply chain remain. Within the group, only the BMW brand recorded drops in volume (-1.4%, 88.1% of the mix), while Mini (+ 2.4%, 11.6%) and Rolls-Royce (+ 13.7%, 0.3%) recorded increases compared to the previous year. The share of fully electric vehicles in total sales was 7.3% (2021: 3.1%; + 135.5%). Motorcycle deliveries increased by 5.7% y / y. Automotive revenues increased 42.7% to 32.9 million euros in 3Q22, mainly reflecting the consolidation of BMW Brilliance Automotive (BBA), as well as the favorable impact of the price / mix ratio, partially offset by the reduction of volumes due to the persistent shortage of components over the period. Automotive EBIT increased 63.6% year-on-year to € 2.87 million. Adjusted operating margins (excluding the one-off effects of BBA consolidation) increased 110bps YoY to 8.9% in 3Q22, reflecting the favorable price / mix dynamic that more than offset the rise in commodity prices and energy.
Free cash flow from the automotive segment amounted to € 9.87 million at the end of 3Q22. Of that amount, EUR5mm came from the consolidation of BBA Brilliance for the first time.
BMW confirmed its forecasts for 2022, with deliveries “slightly below” the record level of 2.5 million units recorded the previous year. It predicts that automotive cash flow (including the impact of the first consolidation of the Chinese joint venture) will exceed 10 billion euros in 2022. BMW maintains its lead for an adjusted operating margin of between 7 and 9% by 2022 as improvements in deliveries, pricing and model launches begin to get noticed.
Research Opinion: BMW’s results have exceeded expectations and it remains a highly rated automotive company, backed by strong credit and operational relationships, while being exposed to the more cycle-resilient high-end segment. It continues to be an investment that needs to be kept stable in the automotive sector. However, like all major manufacturers, it is exposed to the cyclical nature of the global automotive sector. With the rise in tariffs and the decline in real incomes, we believe that the affordability of cars could become a problem for demand and therefore for sales targets. We maintain our forecast that profits will decline from 2023, due to limited revenue growth, higher price discounts and higher costs. The producer, in fact, has already warned that orders are starting to slow down in a context of worsening economic outlook, as high inflation and rising interest rates affect the real purchasing power of households. However, the normalization of the hiring trend continues to clash with an order book at historic highs, which will continue to support improving manufacturing trends, as well as strong underlying profitability and free cash flow generation until the end of 2022. We expect BMW’s volume growth to remain weak after 2022. There may be a slight increase in 2023, led by the launch of new models (Mini, X1) and supplies, but we expect rather flat sales growth in 2024/25. We still believe it the main problem will be the loss of market share to new competitors, such as Tesla. As a result, we believe BMW’s sales are likely to stop at around 2.6 million units, while its target is to increase to 3 million by 2030. For this reason BMW will open new plants in Hungary and China. If we are correct in our predictions, BMW should face increasing underutilization of capacity, increasing the pressure to increase volumes at the expense of lower prices. As we expect only limited volume growth, we believe it is not worth the increase in leverage. In short, the price-to-cost ratio could turn negative for BMW. BMW bonds were exceptionally resilient in 2022, but with little or no upside catalyst on the horizon, we reiterate our recommendation. Neutral by credit.
