BMW

The CEO and CFO presented, followed by a presentation on BMW M (high-performance luxury vehicles). Overall sentiment on the buy side remains very soft, with skepticism about the group's ability to offset any additional external headwinds. Confidence in the group's product (Neue Klasse specifically) and the group's ability to execute its strategy is relatively high.

Financial targets:

•Mid-term target of 8-10% EBIT confirmed.

•Provided additional short-term target. Aiming for 3-5% by end-2028, up from 1-3% in FY26, driven by a reduction in variable costs (0.5%), fixed costs (1.5%) and PPA amortisation roll-off (0.5%). Assumes that market performance will not be a tailwind until post-2028. BMW is being cautious.

•FCF of €5bn in 2028, rising to €7.5bn in 2030.

•Capital allocation under review: the 40% payout upper limit is being reconsidered, while management is also reviewing the portfolio to redirect capital towards more profitable products/regions. Overall, the lack of a positive announcement was not well received.

•Capex should fall below 5% of sales from 2027, with R&D at 4-5%.

Main takeaways:

•China remains the key challenge: BMW expects the Chinese market to remain down and does not assume a cyclical recovery. Remains committed to China, targeting growth in NEVs via Neue Klasse and expects to remain profitable. BMW gained ICE share but needs to catch up in NEVs. Local-for-local production and leveraging China's supplier/software ecosystem are key to restoring competitiveness.

•Cost and complexity reduction are central: BMW wants to simplify its product/platform structure, reduce fixed costs and standardise components. Voluntary redundancies will support the fixed-cost reduction, while supplier savings are expected to become more meaningful from 2028.

•Neue Klasse is critical: BMW sees technological leadership and faster development cycles as essential, particularly in China. The company is targeting <30-month time-to-market and plans to leverage the Chinese technology ecosystem while keeping core auto activities in-house.

•Europe: No overcapacity in Europe. Management guaranteed no European plant closures/redundancies, with plants designed to be powertrain-agnostic. Debrecen will ramp up, but BMW does not currently plan a major relocation of production from Germany.

Bottom line: The event was cautious on China and the near-term market, with BMW explicitly not relying on a cyclical recovery. The 2028-30 equity story is therefore primarily about execution, cost reduction, Neue Klasse and cash generation, while China remains the biggest swing factor.

Expert Opinion:
Nothing new under the sun. We see no reason to go long European carmakers at this stage. Valuation is dirt cheap but is no reason to buy yet. Cost-cutting and rationalization plan are necessary but don't solve the main issue; i.e., the increasing pressure from Chinese EV carmakers.   

Fittingly, the sector is becoming a perfect illustration of the old Chinese torture: death by a thousand cuts.  


For daily updates, subscribe to our newsletter and for detailed information, reach out to us at sales@alphavalue.eu