We attended the 7-series launch with the CFO of BMW, Dr Friedrich
Eichiner, and came out reassured BMW is executing the strategy well into
the launch of the new 7-series. In this note we provide detailed feedback
from the event and a review of our Overweight investment case.
FY15 will be a transition year. FY15 is a transition year for BMW,
which precedes a three-year product renewal cycle beginning with
launch of the new 7-series and X1 in 2H15. While FY15 may see effects
of these models being in the run-out phase, FY16 will see the full-year
benefits of these new launches. This will be followed by the new 1-, 5-
series and X3 in 2017 and the new 3-series and X5 in 2018.
Efficient management of old product portfolio. Discounts at BMW
have remained more or less stable in its major markets – Europe, China
and the US – despite having an old product cycle with the 7-series and
X1 in the run-out phase. This tells us that BMW is actively managing
the inventory of old 7-series and X1 to prevent excessive discounts in
the run-out phase. While this strategy may hurt volumes, it should pay
dividends through lower pricing deterioration.
China: Shifting focus to local production. BMW is revising its China
strategy and plans to increase its focus on local production by planning
to produce six models locally in China vs. three in FY14. The higher
focus on local production will still be beneficial for BMW’s pre-tax
earnings helped by royalties, component exports and JV earnings. We
believe the China contribution to BMW's earnings will return to growth
from FY16 onwards.
Meeting with Dr Eichiner, CFO of BMW, supports our OW rating.
BMW sees market conditions as mixed with Europe remaining strong,
US seeing minor pricing pressure mainly due to the weaker Euro while
China remains very uncertain. Dr. Eichiner reiterated BMW is on track
to hit FY15 targets. We believe the 7-series will compete well against
competitors and will mark the beginning of BMW’s new product cycle.