BMW: Moving into the Fast Lane

In the U.S., people are paying close attention to what’s happening with Tesla (NASDAQ:TSLA). The stock is under pressure after legendary money manager Michael Burry placed a massive bet against Elon Musk’s company. Burry is famous, the subject of the book and film The Big Short. He famously shorted the housing market during the 2008-09 crisis. His new “Big Short” on Tesla has distracted from the success story happening in Germany’s auto sector. Let me explain.

Auto Bounces Back

Last year, the auto industry experienced a catastrophically poor performance due to the Corona pandemic. Today, however, the global passenger car market has recovered. The newly presented figures also show this for the 1st quarter of 2021 of the German premium car manufacturer BMW (OTC:BMWYY).

Just like its major competitor Daimler (OTC:DMLRY), BMW has made a very dynamic start to the current year in its core automotive business. According to preliminary figures, operating profit in the automotive division increased roughly tenfold year-on-year from January to March, reaching a value of 2.24 billion euros.

The previous year’s figure was frail due to the pandemic. Sales in the division rose 27% to 22.8 billion euros in the 1st quarter of this year. Even more decisive than the latest quarterly figures for BMW shareholders are the prospects.

A Lot is Happening at BMW in Terms of E-Mobility

BMW moved into the fast lane when it came to e-mobility some time ago. A few months ago, announced that it already plans to offer 25 electrified models by 2023.

Half of them will be fully electric, the others will be hybrids with a gasoline engine or diesel and an electric motor.

The background to this is EU requirements. BMW and other automakers must reduce their CO2 emissions by 37.5% by 2030 (compared with 2021).

Average values apply, which the carmakers must comply with for their entire fleet.

For every car sold with an internal combustion engine, more and more e-cars or hybrids will have to be sold in the future to comply with the limits.

Hydrogen is the Fuel

BMW is also doing a lot with hydrogen. Starting next year, the company plans to test the second generation of the fuel cell drive in a small series in the BMW i Hydrogen Next based on the current X5. BMW announced during a visit by German Economics Minister Peter Altmeier to the company’s hydrogen competence center.

Unlike Volkswagen (OTC:VWAGY) CEO Herbert Diess, BMW CEO Oliver Zipse had not in the past committed to the e-motor as the drive technology of choice.

Instead, Zipse has always been open to technology and also emphasized the advantages of hydrogen. However, the general conditions are essential. Depending on how the framework conditions develop, hydrogen fuel cell technology can become another pillar in the BMW Group’s drive portfolio, Zipse said.

In my view, BMW, (and also the other major German carmakers) Daimler, and VW are still running behind their major competitor Tesla when it comes to e-mobility.

Still, the gap is getting smaller, and the risk/reward ratio is much better for investment in BMW (P/E ratio 8) than in Tesla (P/E ratio 130).

As Tesla’s lead melts away (VW may even replace Tesla as market leader as early as 2022), the valuation gap should also close a bit.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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