As the automotive industry is going through a tough phase, BMW’s share price suffered a sharp reversal. The price dropped three weeks in a row, and reached its lowest point since January 2023. The stock has fallen by more than 32% since its peak this year. This means that the market is in deep decline.
The auto industry has a new normal
As the growth of electric vehicles slows, and China takes a leadership role in this industry, a new norm is emerging.
China used to be a small player on the global vehicle production scene ten years ago. Companies like BYD – backed by Warren Buffett – have grown into giants. China is now the largest vehicle exporter in the world, surpassing Japan.
The biggest challenge is that companies like Tesla, BYD and Rivian, which have been dominating the Internal Combustion Engine industry for years, are finding it difficult to compete with new EV manufacturers.
Ford and General Motors in the United States have had to drastically reduce their electric vehicle manufacturing ambitions. In Germany, EVs by BMW, Volkswagen and Mercedes are not very popular.
It is easy to understand why the majority of automobile stocks, including Stellantis and Ford, General Motors and Volkswagen , have all fallen in recent months.
BMW faces significant challenges
BMW, parent of Mini and Rolls-Royce faces significant challenges, as its growth continues to slow in key markets such as China and Europe.
Volkswagen, a giant German corporation, was also forced by these challenges to announce that it would be closing its factories in Germany, for the first times in many decades.
Recent financial reports showed that business is slowing down. In the second quarter, its total revenue fell by 0.7% to more than EUR32.9 billion. Revenues fell 0.7% in the first six months of this year to more than EUR73.5 billion.
This slowdown is mainly due to eliminations that cost over 5,8 billion. The revenue of its automotive division rose 1.4%, to EUR32. billion. Financial services’ revenues jumped 10.8% to EUR9.7.
BMW has done relatively better in comparison to Volkswagen. BMW has three main brands instead of VW’s many. These are BMW, Mini and Rolls-Royce. BMW is a major player in both the motorcycling and automobile industries.
BMW had relatively good sales, but its profit was not as high, due to the continued rise in costs. The result was that the group’s profit fell by 10.7% to EUR3.8bn in the second half of the year and EUR7.93bn in the first. The company also cut its forecast, explaining why shares have fallen.
The number of BMWs sold rose 2.2%, to 565 490, while the Minis and Rolls-Royces fell 27% and 16%, respectively.
Challenges and catalysts
BMW is the most well-known brand in the automotive industry. It has a global presence.
Its brand will be boosted by its legacy in creating high-quality ICE cars, as this will offset its losses from the EV market. As with many analysts, I think that BMW should concentrate on becoming a leader within the ICE industry, rather than pouring large sums of cash into the EV sector.
A second option would be to use the strong balance sheet of the company to purchase some undervalued Chinese electric vehicle manufacturers. Nio Auto and Li Auto are two companies that could be acquired. They have a valuation of between $11.5 and $20 billion.
This acquisition will allow the company to continue to use its size in the ICE sector while having an advantage in the EV industry.
BMW’s other advantage is its significant price reduction compared with the peers. The stock trades for 3.9x its free cash flow, and has 2.16 earnings in the future. The price-to book ratio is also 0.52
BMW’s stock is undervalued as investors expect a weaker demand for the upcoming years, when the auto industry will be going through some rough times.
BMW has a dividend yield of 8.1% which is higher than other companies such as General Motors or Ford.
BMW Share Price Analysis
On the weekly chart, the BMW share price has formed a chart double-top pattern at EUR106. This is usually one of the more popular bearish signals in the market.
Stocks have also fallen below EUR81.65 – its lowest level since October of last year. The stock has fallen below both the 200-week and 50-week moving averages, as well as the Fibonacci retracement of 38.2%.
Both the MACD and Relative Strength Index indicators continue to fall. The path of least resistance is down for BMW’s share price. Next, we should watch the EUR58.32 61.8% point.
The post BMW Share Price: Rolls-Royce Parent Forms a Dangerous Pattern may be updated as new information becomes available
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