Bmw & Bargains Inwards Manifestly Sight
August 09, 2017
Edit
If the bears are to last believed, nosotros are living inward a globe of overvalued global markets inflated past times excessive key banking concern stimulus, that offering investors the torturous combination of scant chance in addition to substantial systemic risk. I practice non run into this narrative inward my portfolio. Sure, at that topographic point are parts of global markets that are expensive - notably yield-proxies, in addition to parts of the tech industry. However, at that topographic point are soundless plenty of bargains inward other parts of the marketplace hiding inward land sight.
An representative correct at nowadays are the shares of BMW Preferred. BMW is hardly an obscure fellowship nobody has ever heard of. And yet the stock is startlingly inexpensive - especially the prefs. BMW has 602m ordinary shares outstanding at 55m preferred shares. The latter receive got substantially identical economical rights to the ordinary shares, but lack voting rights. They merchandise at €70, or an approximate 12.5% discount to the mutual (the ords merchandise at about €80).
As a small-time punter, whatever voting rights I larn count for little, in addition to the prefs receive got to a greater extent than than sufficient liquidity for an investor of my size, so the liquidity discount is non at issue. I hence ain the prefs. At the electrical flow pref portion toll of €70, BMW's marketplace capitalization (all 657m shares of both classes) is €45bn. As I hope to demonstrate, this appears remarkably cheap. In the brusk term, regulatory & European Union penalty/fine chance is high, but fundamentally, the stock looks inexpensive plenty to suffer almost whatever grade of viable penalties.
The auto narrative is bad
At the minute the marketplace does non similar auto stocks, because the narrative is miserable in addition to goes something similar this: Cyclically, the U.S. of America auto cycle looks to last topping out, in addition to mainland People's Republic of China is belike non likewise far behind every bit well. In addition, structurally, the globe is heading towards a hereafter of fully electrical vehicles (FEVs) replacing internal-combustion engine (ICE) vehicles. This is probable to disrupt traditional automakers, it is argued, in addition to volition require them to compete alongside a hit of novel innovative marketplace entrants. This includes - most manifestly - Tesla, but also potentially other Silicon Valley behemoths similar Google in addition to Apple, which may seek to larn into the fray every bit well.
In addition, a motility to fully-autonomous vehicles is on the horizon, which could fundamentally alter the human relationship nosotros receive got alongside our cars. The globe may eventually tendency away from private auto ownership towards a TaaS ('transportation every bit a service') hereafter where autonomous ride-hailing fleets provision our mobility needs. In theory, this could outcome inward a considerable shrinkage inward the size of requisite automotive fleet (as utilization rates rise), every bit good every bit manufacture commodification, every bit vehicle sales transition to large standardized fleet sales rather than differentiated private sales.
Thirdly, the much maligned millennial generation apparently practice non aid nearly auto ownership - preferring to utilization Uber in addition to alive inward inner-city areas closed to move to avoid the ask to commute - in addition to importantly, practice non catch cars every bit a status symbol inward the fashion their parents' generation did. Showing off experiences on Facebook is in, in addition to showing off luxury goods is out. This also threatens to commodify the manufacture long term in addition to trim back luxury automobile build rents.
Fourthly, sure High German automakers receive got been caught cheating on diesel-emissions testing inward the past, in addition to complying alongside European Union regulators diesel fuel emissions standards economically without cheating could bear witness difficult. Ergo, the High German automakers - which receive got bet large on diesel fuel engineering - are stuffed. In addition, fines in addition to vehicle defect recalls are a perennial manufacture risk.
Lastly, the automobile manufacture is historically non exactly cyclical, but also working capital missive of the alphabet intensive in addition to vigorously competitive, which has resulted inward the manufacture to a greater extent than oftentimes than non failing to earn its cost of working capital missive of the alphabet over a total economical cycle. With all of the higher upwards long term risks, why bother?
For those who aid to facial expression no further, at that topographic point appears to last 'no ground to last there'.
Forget the narrative for a moment, in addition to facial expression at the numbers
Before addressing the merits of the bearish narrative, it is worth noting that inward my experience, when inward conflict, it is ameliorate to bet on what the objective information is telling you, rather than the pop narrative.
As is oftentimes the instance inward all fashion of human political in addition to societal affairs, the pop narrative is oftentimes subjectively biased; laden alongside agenda in addition to wishful thinking; in addition to overly simplified. The stock marketplace is no different. Nuanced thinking is hard in addition to fourth dimension consuming. Binary thinking condensed into soundbites is easier to digest in addition to is to a greater extent than directly actionable. The payoff of starting alongside the information is that - provided the information is reliably assembled in addition to accurately interpreted - it is to a greater extent than oftentimes than non to a greater extent than objective in addition to gratis of such biases. It's a skilful starting point.
If ane looks at BMW objectively, what they volition discover is a fellowship selling vehicles inward tape numbers, in addition to booking tape sales in addition to profits, because they hold producing in addition to selling cars that people desire to buy. People desire FEVs non ICEs? Not inward the numbers. People don't aid nearly the BMW build whatever more? Not inward the numbers. The auto manufacture is unprofitable in addition to competitive? Not inward the numbers: BMW's automotive EBIT margin is pushing 10%, in addition to their render on invested working capital missive of the alphabet has been consistently higher upwards 20%. The information also paints a film of global economical increment beingness relatively corporation at introduce every bit well, despite the preponderance of doom-merchants.
Furthermore, when analyzing companies I ever showtime alongside the residue canvas - a much neglected fiscal disceptation past times the earnings-obsessed markets. If ane cares look, it tin last easily observed that the fellowship has cash, liquid investments, in addition to on-balance-sheet finance receivables/lease assets (which relate to their substantial in-house financing division), internet of all fellowship in addition to financing subsidiary debt in addition to grouping pension obligations, of €35bn - an incredible 78% of the company's marketplace capitalization (at the prefs price).
The fellowship also has a 50:50 Chinese JV inward partnership alongside the listed Brilliance mainland People's Republic of China Automotive (1114 HK), which, incidentally, has risen 137% over the past times 12mths. The volume value of this JV is nearly €3bn (BMW's share), but the marketplace capitalization of Brilliance is at nowadays HK$105bn, or €9.2bn, or nearly 3x book. If BMW's 50% portion is similarly valued €9bn, this would accept BMW's valuation to €44bn inclusive of the higher upwards internet fiscal position, before placing any value on the company's global auto operations excluding China.
Those automotive operations, past times the way, made a tape €4.3bn inward operating turn a profit (EBIT) inward 1H17 (€4.1bn for automobiles in addition to €0.2bn for motorbikes). Net of taxes, annual automotive earnings are probable to approach €6.0bn this year. Inclusive of earnings from the companies JVs in addition to financing subsidiaries, grouping earnings are probable to transcend €7.0bn, in addition to house the stock on a PE of nearly 6x (at the prefs price).
As tin last seen, even if the pop narrative is correct nearly the long term impending doom of the conventional auto industry, the stock soundless looks to last a purchase to me.
Why the narrative may last wrong
Furthermore, at that topographic point are many reasons why the pop narrative outlined before may bear witness either likewise pessimistic or fifty-fifty apartment wrong. Note that I tell may. That's plenty for the stock to last compelling, every bit one's downside is covered past times a really conservative valuation every bit discussed. Optionality creates value, in addition to if the marketplace ever favorably reappraises the outlook, a lot of coin could last made.
Firstly, alongside abide by to the (likely) the coming transition towards electrical vehicles, it is of import to deport inward heed that FEVs are much less of a disruption to the traditional auto manufacture than, say, digital cameras were to Kodak. Traditional auto companies are quite capable of transitioning to manufacturing FEVs - indeed most are already capable of mass-producing them, in addition to are non doing so primarily because consumer demand soundless remains relatively express (interestingly, BMW sold 45k fully-electric in addition to hybrid-electric vehicles inward 1H17 - roughly the same number every bit Tesla; dissimilar Telsa, however, BMW also sold 1.2m highly profitable conventional vehicles during 1H17).
BMW has noted that past times 2019-20, it is aiming to receive got its platforms capable of producing ICE, hybrid, in addition to FEVs on the same production line, which volition grant the fellowship flexibility to rapidly switch betwixt alternative powertrains inward response to shifts inward consumer demand (which tin last impacted past times authorities subsidies in addition to fossil oil prices). This volition house the fellowship at a medium term strategic payoff to companies similar Tesla who tin alone make FEVs (and volition alone make FEVs, given that accelerating the adoption of FEVs is the company's mission). In short, FEVs are an evolutionary rather than revolutionary automotive engineering platform (for the auto industry) that existing auto companies volition chop-chop adopt, rather than last discover of describe of piece of occupation organisation by.
In addition, in addition to really importantly, the automotive manufacture has long been intensely competitive. This is really important, because the companies that are most vulnerable to disruption are hitherto lazy monopolies. Auto companies are non lazy in addition to inefficient - they cannot afford to last because contest is merciless. Auto companies are already battle hardened, in addition to they volition last quick to re-create in addition to adopt novel in addition to successful innovations companies such every bit Tesla pioneer. Many many companies are investing inward autonomous vehicle software every bit well, so such software should last like shooting fish in a barrel to license (BMW is spending heavily on in-house R&D - to a greater extent than than 4% of sales - every bit well).
Silicon Valley is skilful at writing code, but it has no special advantages when it comes to mass-producing automobiles efficiently in addition to profitably, in addition to inward my persuasion it is to a greater extent than probable to last large auto companies alongside decades of sense designing, mass-producing, marketing, in addition to distributing automobiles, alongside established brands, that are probable to win inward FEVs, non novel Silicon Valley marketplace entrants (the exception is Tesla which I think volition likely practice reasonably good long term, although I receive got no involvement inward owning Tesla stock at electrical flow prices).
In addition, the automobile manufacture is non a winner-takes-all industry. People receive got different tastes inward cars every bit good every bit different needs in addition to uses for them (style, comfort, prestige, performance, people-mover, safety, haulage capacity, etc), in addition to so at that topographic point is room inward the marketplace for different brands. For the foreseeable future, automobile brands in addition to styling volition proceed to thing to many auto buyers.
What nearly the motility to total autonomy in addition to ride-sharing? There appears niggling doubtfulness that vehicles volition eventually move fully autonomous, but the inquiry of when is hard to answer. It seems probable to me that at that topographic point volition last orders of magnitude leaps inward complexity associated alongside moving from 90% reliability, to 99%, to 99.9%, in addition to so 99.99%, etc. No doubtfulness nosotros volition eventually larn there, but partial-autotonomy/assisted driving seems probable to last alongside us for a considerable menstruum before consummate hands-off-the-wheel autonomy capable of treatment all driving situations in addition to route in addition to conditions conditions is achieved.
It seems similar a 5-10yrs technical projection at a minimum to me, for 99.9999% reliability to last achieved, in addition to it could good last considerably longer. Then, regulatory approvals volition last required (and regulators motility a lot to a greater extent than tardily than technology), in addition to so the existing auto fleet volition receive got to last phased out in addition to replaced - a chore that inward in addition to of itself could accept at to the lowest degree a decade. The transition sure enough won't come about overnight, in addition to inward the meantime, companies similar BMW are probable to proceed to build a lot of money.
Furthermore, fifty-fifty inward a total autonomy situation, it is non clear how much demand volition decline. It is without doubtfulness possible to envisage a hereafter where households practice non ain a auto but simply summon an autonomous Uber (or the hereafter networked equivalent) whenever they ask to move from A to B. However, (1) summit demand volition restrain the extent to which fleets tin last shared (for the foreseeable future, most people are probable larn upwards in addition to commute to in addition to from move at nearly the same time, Mon to Friday), which volition moderate the extent to which the fleet size tin shrink via higher utilization; in addition to (2) alongside the cost of personal mobility declining, it is probable that the quantity of personal mobility services consumed volition rising (just every bit people wing to a greater extent than when it is to a greater extent than affordable).
This is also non to refer the considerable long term increment chance that exists inward emerging markets where auto ownership levels stay significantly below developed globe averages. The U.S. of America auto & truck population is currently nearly 250m vehicles, or nearly 75 vehicles for every 100 caput of population. By contrast, the global auto population, on recent trends (I could alone discover information to 2014), looks probable to receive got climbed to 1.35bn past times the goal of 2016, or to nearly eighteen vehicles per 100 caput of population. This penetration gap is probable to proceed tardily closed over time.
The biggest brusk term chance is undeniably regulatory in addition to whatever penalties associated alongside diesel fuel emissions cheating or collusion that emerges. VW was ultimately fined to a greater extent than than €20bn, so the risks are far from negligible. I receive got few insights to add together here, other than to tell (1) the auto companies are vital to Germany's economic scheme in addition to employ a lot of people, so at that topographic point is probable to last a restrain to the extent to which German/EU regulators are prepared to damage them; (2) VW's 2014 sense is probable to receive got set Germany's other auto companies on notice; (3) BMW has to engagement denied whatever wrongdoing; (4) final week's developments hint at the possibility of a sensible compromise solution; in addition to most importantly (5) BMW's marketplace toll already provides a substantial margin of security against adverse outcomes (although inward the brusk term the portion toll volition probable move downward if outcomes are worse than expected).
Longer term, the biggest chance to BMW is maybe manufacture build commodification if mobility moves primarily to ride-sharing that utilize homogenous fleets. However, inward the meantime, the BMW build continues to stand upwards for prestige in addition to grade in addition to volition proceed to, inward my opinion, ascendance a marketplace premium. The marketplace is currently giving BMW niggling to no credit for this powerful build value which is probable last enduring over at to the lowest degree the medium term, in addition to whose existence is clearly evident inward the company's ROIC metrics.
My positioning
I receive got owned BMW prefs since early on this twelvemonth at an acquisition toll of about €70 (flat vs. its electrical flow trading level, but upwards nearly 15% afterwards factoring inward dividends in addition to Euro appreciation). I late took the chance to top-up afterwards the stock weakened to €67 on renewed 'dieselgate' fears. BMW prefs receive got an average weighing of 1-2% weightings inward portfolios I manage.
The higher upwards analysis is furnished for informational/entertainment purposes only, in addition to is non to last construed every bit investment advice. The writer provides no warranty whatsoever every bit to the accuracy of the contents of the post, in addition to reserves all rights to merchandise inward whatever securities mentioned inward whatever article at whatever time.
An representative correct at nowadays are the shares of BMW Preferred. BMW is hardly an obscure fellowship nobody has ever heard of. And yet the stock is startlingly inexpensive - especially the prefs. BMW has 602m ordinary shares outstanding at 55m preferred shares. The latter receive got substantially identical economical rights to the ordinary shares, but lack voting rights. They merchandise at €70, or an approximate 12.5% discount to the mutual (the ords merchandise at about €80).
As a small-time punter, whatever voting rights I larn count for little, in addition to the prefs receive got to a greater extent than than sufficient liquidity for an investor of my size, so the liquidity discount is non at issue. I hence ain the prefs. At the electrical flow pref portion toll of €70, BMW's marketplace capitalization (all 657m shares of both classes) is €45bn. As I hope to demonstrate, this appears remarkably cheap. In the brusk term, regulatory & European Union penalty/fine chance is high, but fundamentally, the stock looks inexpensive plenty to suffer almost whatever grade of viable penalties.
The auto narrative is bad
At the minute the marketplace does non similar auto stocks, because the narrative is miserable in addition to goes something similar this: Cyclically, the U.S. of America auto cycle looks to last topping out, in addition to mainland People's Republic of China is belike non likewise far behind every bit well. In addition, structurally, the globe is heading towards a hereafter of fully electrical vehicles (FEVs) replacing internal-combustion engine (ICE) vehicles. This is probable to disrupt traditional automakers, it is argued, in addition to volition require them to compete alongside a hit of novel innovative marketplace entrants. This includes - most manifestly - Tesla, but also potentially other Silicon Valley behemoths similar Google in addition to Apple, which may seek to larn into the fray every bit well.
In addition, a motility to fully-autonomous vehicles is on the horizon, which could fundamentally alter the human relationship nosotros receive got alongside our cars. The globe may eventually tendency away from private auto ownership towards a TaaS ('transportation every bit a service') hereafter where autonomous ride-hailing fleets provision our mobility needs. In theory, this could outcome inward a considerable shrinkage inward the size of requisite automotive fleet (as utilization rates rise), every bit good every bit manufacture commodification, every bit vehicle sales transition to large standardized fleet sales rather than differentiated private sales.
Thirdly, the much maligned millennial generation apparently practice non aid nearly auto ownership - preferring to utilization Uber in addition to alive inward inner-city areas closed to move to avoid the ask to commute - in addition to importantly, practice non catch cars every bit a status symbol inward the fashion their parents' generation did. Showing off experiences on Facebook is in, in addition to showing off luxury goods is out. This also threatens to commodify the manufacture long term in addition to trim back luxury automobile build rents.
Fourthly, sure High German automakers receive got been caught cheating on diesel-emissions testing inward the past, in addition to complying alongside European Union regulators diesel fuel emissions standards economically without cheating could bear witness difficult. Ergo, the High German automakers - which receive got bet large on diesel fuel engineering - are stuffed. In addition, fines in addition to vehicle defect recalls are a perennial manufacture risk.
Lastly, the automobile manufacture is historically non exactly cyclical, but also working capital missive of the alphabet intensive in addition to vigorously competitive, which has resulted inward the manufacture to a greater extent than oftentimes than non failing to earn its cost of working capital missive of the alphabet over a total economical cycle. With all of the higher upwards long term risks, why bother?
For those who aid to facial expression no further, at that topographic point appears to last 'no ground to last there'.
Forget the narrative for a moment, in addition to facial expression at the numbers
Before addressing the merits of the bearish narrative, it is worth noting that inward my experience, when inward conflict, it is ameliorate to bet on what the objective information is telling you, rather than the pop narrative.
As is oftentimes the instance inward all fashion of human political in addition to societal affairs, the pop narrative is oftentimes subjectively biased; laden alongside agenda in addition to wishful thinking; in addition to overly simplified. The stock marketplace is no different. Nuanced thinking is hard in addition to fourth dimension consuming. Binary thinking condensed into soundbites is easier to digest in addition to is to a greater extent than directly actionable. The payoff of starting alongside the information is that - provided the information is reliably assembled in addition to accurately interpreted - it is to a greater extent than oftentimes than non to a greater extent than objective in addition to gratis of such biases. It's a skilful starting point.
If ane looks at BMW objectively, what they volition discover is a fellowship selling vehicles inward tape numbers, in addition to booking tape sales in addition to profits, because they hold producing in addition to selling cars that people desire to buy. People desire FEVs non ICEs? Not inward the numbers. People don't aid nearly the BMW build whatever more? Not inward the numbers. The auto manufacture is unprofitable in addition to competitive? Not inward the numbers: BMW's automotive EBIT margin is pushing 10%, in addition to their render on invested working capital missive of the alphabet has been consistently higher upwards 20%. The information also paints a film of global economical increment beingness relatively corporation at introduce every bit well, despite the preponderance of doom-merchants.
Furthermore, when analyzing companies I ever showtime alongside the residue canvas - a much neglected fiscal disceptation past times the earnings-obsessed markets. If ane cares look, it tin last easily observed that the fellowship has cash, liquid investments, in addition to on-balance-sheet finance receivables/lease assets (which relate to their substantial in-house financing division), internet of all fellowship in addition to financing subsidiary debt in addition to grouping pension obligations, of €35bn - an incredible 78% of the company's marketplace capitalization (at the prefs price).
The fellowship also has a 50:50 Chinese JV inward partnership alongside the listed Brilliance mainland People's Republic of China Automotive (1114 HK), which, incidentally, has risen 137% over the past times 12mths. The volume value of this JV is nearly €3bn (BMW's share), but the marketplace capitalization of Brilliance is at nowadays HK$105bn, or €9.2bn, or nearly 3x book. If BMW's 50% portion is similarly valued €9bn, this would accept BMW's valuation to €44bn inclusive of the higher upwards internet fiscal position, before placing any value on the company's global auto operations excluding China.
Those automotive operations, past times the way, made a tape €4.3bn inward operating turn a profit (EBIT) inward 1H17 (€4.1bn for automobiles in addition to €0.2bn for motorbikes). Net of taxes, annual automotive earnings are probable to approach €6.0bn this year. Inclusive of earnings from the companies JVs in addition to financing subsidiaries, grouping earnings are probable to transcend €7.0bn, in addition to house the stock on a PE of nearly 6x (at the prefs price).
As tin last seen, even if the pop narrative is correct nearly the long term impending doom of the conventional auto industry, the stock soundless looks to last a purchase to me.
Why the narrative may last wrong
Furthermore, at that topographic point are many reasons why the pop narrative outlined before may bear witness either likewise pessimistic or fifty-fifty apartment wrong. Note that I tell may. That's plenty for the stock to last compelling, every bit one's downside is covered past times a really conservative valuation every bit discussed. Optionality creates value, in addition to if the marketplace ever favorably reappraises the outlook, a lot of coin could last made.
Firstly, alongside abide by to the (likely) the coming transition towards electrical vehicles, it is of import to deport inward heed that FEVs are much less of a disruption to the traditional auto manufacture than, say, digital cameras were to Kodak. Traditional auto companies are quite capable of transitioning to manufacturing FEVs - indeed most are already capable of mass-producing them, in addition to are non doing so primarily because consumer demand soundless remains relatively express (interestingly, BMW sold 45k fully-electric in addition to hybrid-electric vehicles inward 1H17 - roughly the same number every bit Tesla; dissimilar Telsa, however, BMW also sold 1.2m highly profitable conventional vehicles during 1H17).
BMW has noted that past times 2019-20, it is aiming to receive got its platforms capable of producing ICE, hybrid, in addition to FEVs on the same production line, which volition grant the fellowship flexibility to rapidly switch betwixt alternative powertrains inward response to shifts inward consumer demand (which tin last impacted past times authorities subsidies in addition to fossil oil prices). This volition house the fellowship at a medium term strategic payoff to companies similar Tesla who tin alone make FEVs (and volition alone make FEVs, given that accelerating the adoption of FEVs is the company's mission). In short, FEVs are an evolutionary rather than revolutionary automotive engineering platform (for the auto industry) that existing auto companies volition chop-chop adopt, rather than last discover of describe of piece of occupation organisation by.
In addition, in addition to really importantly, the automotive manufacture has long been intensely competitive. This is really important, because the companies that are most vulnerable to disruption are hitherto lazy monopolies. Auto companies are non lazy in addition to inefficient - they cannot afford to last because contest is merciless. Auto companies are already battle hardened, in addition to they volition last quick to re-create in addition to adopt novel in addition to successful innovations companies such every bit Tesla pioneer. Many many companies are investing inward autonomous vehicle software every bit well, so such software should last like shooting fish in a barrel to license (BMW is spending heavily on in-house R&D - to a greater extent than than 4% of sales - every bit well).
Silicon Valley is skilful at writing code, but it has no special advantages when it comes to mass-producing automobiles efficiently in addition to profitably, in addition to inward my persuasion it is to a greater extent than probable to last large auto companies alongside decades of sense designing, mass-producing, marketing, in addition to distributing automobiles, alongside established brands, that are probable to win inward FEVs, non novel Silicon Valley marketplace entrants (the exception is Tesla which I think volition likely practice reasonably good long term, although I receive got no involvement inward owning Tesla stock at electrical flow prices).
In addition, the automobile manufacture is non a winner-takes-all industry. People receive got different tastes inward cars every bit good every bit different needs in addition to uses for them (style, comfort, prestige, performance, people-mover, safety, haulage capacity, etc), in addition to so at that topographic point is room inward the marketplace for different brands. For the foreseeable future, automobile brands in addition to styling volition proceed to thing to many auto buyers.
What nearly the motility to total autonomy in addition to ride-sharing? There appears niggling doubtfulness that vehicles volition eventually move fully autonomous, but the inquiry of when is hard to answer. It seems probable to me that at that topographic point volition last orders of magnitude leaps inward complexity associated alongside moving from 90% reliability, to 99%, to 99.9%, in addition to so 99.99%, etc. No doubtfulness nosotros volition eventually larn there, but partial-autotonomy/assisted driving seems probable to last alongside us for a considerable menstruum before consummate hands-off-the-wheel autonomy capable of treatment all driving situations in addition to route in addition to conditions conditions is achieved.
It seems similar a 5-10yrs technical projection at a minimum to me, for 99.9999% reliability to last achieved, in addition to it could good last considerably longer. Then, regulatory approvals volition last required (and regulators motility a lot to a greater extent than tardily than technology), in addition to so the existing auto fleet volition receive got to last phased out in addition to replaced - a chore that inward in addition to of itself could accept at to the lowest degree a decade. The transition sure enough won't come about overnight, in addition to inward the meantime, companies similar BMW are probable to proceed to build a lot of money.
Furthermore, fifty-fifty inward a total autonomy situation, it is non clear how much demand volition decline. It is without doubtfulness possible to envisage a hereafter where households practice non ain a auto but simply summon an autonomous Uber (or the hereafter networked equivalent) whenever they ask to move from A to B. However, (1) summit demand volition restrain the extent to which fleets tin last shared (for the foreseeable future, most people are probable larn upwards in addition to commute to in addition to from move at nearly the same time, Mon to Friday), which volition moderate the extent to which the fleet size tin shrink via higher utilization; in addition to (2) alongside the cost of personal mobility declining, it is probable that the quantity of personal mobility services consumed volition rising (just every bit people wing to a greater extent than when it is to a greater extent than affordable).
This is also non to refer the considerable long term increment chance that exists inward emerging markets where auto ownership levels stay significantly below developed globe averages. The U.S. of America auto & truck population is currently nearly 250m vehicles, or nearly 75 vehicles for every 100 caput of population. By contrast, the global auto population, on recent trends (I could alone discover information to 2014), looks probable to receive got climbed to 1.35bn past times the goal of 2016, or to nearly eighteen vehicles per 100 caput of population. This penetration gap is probable to proceed tardily closed over time.
The biggest brusk term chance is undeniably regulatory in addition to whatever penalties associated alongside diesel fuel emissions cheating or collusion that emerges. VW was ultimately fined to a greater extent than than €20bn, so the risks are far from negligible. I receive got few insights to add together here, other than to tell (1) the auto companies are vital to Germany's economic scheme in addition to employ a lot of people, so at that topographic point is probable to last a restrain to the extent to which German/EU regulators are prepared to damage them; (2) VW's 2014 sense is probable to receive got set Germany's other auto companies on notice; (3) BMW has to engagement denied whatever wrongdoing; (4) final week's developments hint at the possibility of a sensible compromise solution; in addition to most importantly (5) BMW's marketplace toll already provides a substantial margin of security against adverse outcomes (although inward the brusk term the portion toll volition probable move downward if outcomes are worse than expected).
Longer term, the biggest chance to BMW is maybe manufacture build commodification if mobility moves primarily to ride-sharing that utilize homogenous fleets. However, inward the meantime, the BMW build continues to stand upwards for prestige in addition to grade in addition to volition proceed to, inward my opinion, ascendance a marketplace premium. The marketplace is currently giving BMW niggling to no credit for this powerful build value which is probable last enduring over at to the lowest degree the medium term, in addition to whose existence is clearly evident inward the company's ROIC metrics.
My positioning
I receive got owned BMW prefs since early on this twelvemonth at an acquisition toll of about €70 (flat vs. its electrical flow trading level, but upwards nearly 15% afterwards factoring inward dividends in addition to Euro appreciation). I late took the chance to top-up afterwards the stock weakened to €67 on renewed 'dieselgate' fears. BMW prefs receive got an average weighing of 1-2% weightings inward portfolios I manage.
Comments welcome.
LT3000
The higher upwards analysis is furnished for informational/entertainment purposes only, in addition to is non to last construed every bit investment advice. The writer provides no warranty whatsoever every bit to the accuracy of the contents of the post, in addition to reserves all rights to merchandise inward whatever securities mentioned inward whatever article at whatever time.