Compliance Costs And EV Lag Will Diminish Value

Key Takeaways

• Lagging in electric vehicle transition and heavy reliance on internal combustion engines risk market share and margin compression amid shifting regulations and consumer preferences.
  
• High dependence on China and ongoing supply chain uncertainties undermine revenue predictability and expose the company to intensified competition and regulatory risks.
  
• Emphasis on electrification, local US production, strategic adaptation in China, and luxury segment focus positions BMW for resilient growth, stable margins, and sustained profitability.

Catalysts

Develops, manufactures, and sells automobiles and motorcycles, spare parts, and accessories worldwide.

• The accelerating implementation of climate regulations worldwide may impose heavier compliance and localization costs on legacy automakers like BMW, especially as the company continues to rely on a sizable internal combustion engine portfolio and faces uncertainty about whether U.S. and EU tariffs will be temporary or permanent; these dynamics threaten both operating margin and future earnings resilience.
  
• Rising consumer preference in both developed and emerging economies for mobility-as-a-service and shared transportation over premium car ownership directly undermines demand for BMW's core high-margin models, likely capping long-term revenue growth and making it more difficult to sustain pricing power.
  
• Persistent supply chain risks, including ongoing geopolitical instability, resource nationalism, and potential further trade tensions with China or the U.S., may raise input costs and disrupt battery and semiconductor supply, creating production inefficiencies that could further compress BMW's net margins.
  
• BMW's transition to electric vehicles continues to lag behind both established premium competitors and new entrants, which risks accelerating market share erosion in the most profitable EV segments; this likely restricts the company's ability to grow revenues and maintain attractive margins, especially if demand for ICE vehicles diminishes more rapidly than expected.
  
• Heavy dependence on the China market for both volume and profit leaves BMW acutely exposed to local market weakness, intensifying price competition from Chinese EV makers, and potential regulatory crackdowns, all of which could produce a sustained drag on revenue growth and group earnings predictability.

Bayerische Motoren Werke Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Bayerische Motoren Werke compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Bayerische Motoren Werke's revenue will decrease by 1.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.7% today to 5.5% in 3 years time.
• The bearish analysts expect earnings to reach €7.4 billion (and earnings per share of €nan) by about July 2028, up from €6.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 6.2x on those 2028 earnings, down from 7.9x today. This future PE is lower than the current PE for the GB Auto industry at 6.6x.
• Analysts expect the number of shares outstanding to decline by 4.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.93%, as per the Simply Wall St company report.

Bayerische Motoren Werke Future Earnings Per Share Growth

Risks

• BMW's significant ongoing and planned investments in the United States, especially in EV production and batteries, position it to benefit from electrification and localization trends, likely supporting long-term revenue growth and improving cost structure.
  
• The company's ability to adapt to and potentially mitigate the impact of tariffs through local production, export strength, and robust government and supplier negotiations could support earnings resilience and margin stability over time.
  
• Streamlining the Chinese dealer network while attracting new, confident investors indicates effective adaptation to changing market conditions, which could stabilize and potentially grow revenues and profitability in one of BMW's most critical markets.
  
• The strong brand premium, focus on luxury segments above general market price wars in China, and upcoming product launches like the Neue Klasse and new X3 suggest BMW can maintain its pricing power and high-margin product mix, supporting net margin performance.
  
• Continued indications of strong demand in the United States, healthy dealer inventory levels, and stable transaction pricing demonstrate robust customer preference, which can drive sustained revenue growth and protect overall group profits.

Valuation

• The assumed bearish price target for Bayerische Motoren Werke is €65.65, which represents two standard deviations below the consensus price target of €86.97. This valuation is based on what can be assumed as the expectations of Bayerische Motoren Werke's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €117.0, and the most bearish reporting a price target of just €63.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €134.5 billion, earnings will come to €7.4 billion, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 9.9%.
• Given the current share price of €86.7, the bearish analyst price target of €65.65 is 32.1% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.