BMW is still considered one of the best-run automakers in the world. Even though its profit margins are shrinking and the Chinese auto market is weak, the stock looks like a bargain right now.
BMW continues to lead in electric vehicle technology with its Neue Klasse platform. This summer, the new all-electric iX3 SUV will arrive at U.S. dealerships, offering about 400 miles of range and starting at around $61,000.
BMW’s shares listed in Europe have dropped a lot this year and are now trading below their levels from ten years ago. The U.S.-listed shares, which represent a portion of a European share, have also fallen by a similar amount.
Much of the pressure comes from a profit warning in June, which was linked to weakness in China. Local companies like BYD are taking market share from European luxury brands. BMW’s sales in China dropped sharply in the second quarter, which has made investors worry about the company’s ability to bounce back. However, this concern may be too pessimistic, considering BMW’s strengths.
Investors may not be giving BMW enough credit for its strong position in the U.S. and European markets, or for its solid balance sheet.
Chief executive Milan Nedeljkovic said during the second-quarter earnings call that BMW is acting quickly to make needed changes and improve its finances. The company is cutting costs, including about 8,000 layoffs in Europe, and has finished the most expensive phase of investing in its new EV platform. This means capital spending should go down from here.
A positive development could come at BMW’s annual capital markets day in late September. The company might announce higher returns for shareholders, such as a bigger dividend payout. BMW already buys back more than €1 billion in stock each year, which is a significant part of its market value. As capital spending goes down, BMW could increase its buybacks, much like General Motors has done.
The manager of Third Avenue Value Fund, which owns BMW shares, said the stock seems very cheap, especially considering how well-financed and well-managed the company is. The manager believes the market is pricing in more risk than is justified. They also pointed out that BMW’s automotive business is still expected to bring in about $2.5 billion in free cash flow this year, even though this has been one of the company’s toughest years in twenty years.
