BMW shares plummet: Crisis in the German auto industry deepens

The expert notes that "until the spring of this year, BMW was perceived as relatively resilient to 'systemic' turbulence in the German industry and could boast a rising share price dynamic compared to Volkswagen or Porsche."

As the analyst points out, BMW could boast a rising share price dynamic compared to Volkswagen or Porsche. Some investors took this as a positive sign, hoping the crisis would not affect every European company.

Now, with the giant's shares diving to levels not seen since the fall of 2022, investors are beginning to realize that the crisis facing German automotive will affect all manufacturers, including those who have so far demonstrated cost discipline and high-quality management of the production process and the entire enterprise. As an example, we can also mention Porsche.

This is also a sign that what is happening with the automotive industry in Germany is more than just a problem of individual companies - we read in the commentary.

The expert points to the cyclical nature of the automotive industry, noting that only the highest-class brands, such as Ferrari, can boast a filled order calendar several years in advance. The sector faces severe problems. "A mix of higher production costs, significantly influenced by more expensive energy, and a slowdown in the Chinese market, one of the main targets for German car exports, create problems that do not have a good or, most importantly, quick solution."

XTB analyst predicts that investors may be inclined to sell off the assets of German companies at a growing discount. "The prospect of increasing profitability is receding, and the industry will remain sensitive to fears of a recession in the US, possible deflation in China, and further economic slowdown in Europe."

The reduction in BMW's delivery forecasts, which "now expects a slight year-over-year decline, while in the last forecast, it expected limited year-over-year growth, " the expert adds, "the market perceives this as a foregone conclusion (especially in the third quarter of 2024) of cost increases, with disappointing sales dynamics for the company itself, which required revision."

The XTB analyst emphasizes the impact of high credit costs on car demand, noting that "before they reach 'attractive' levels for consumers affected by inflation after interest rate cuts, it may take many quarters." It is also pointed out that subdued consumer activity in China adds uncertainty, given the scale of investment by German automotive companies in this market. "Driven by the prospect of long-term profits, they incurred enormous costs, which since 2020 have not 'paid off' on a satisfactory scale," the analyst emphasizes.

BMW's problems are another bad signal the German automotive industry sends. Last week, Volkswagen announced that it does not rule out closing one of its factories in Germany as part of a cost-saving program. This would be the first such situation in 87 years. The company is also considering the possibility of canceling employment guarantees that are valid until 2029. At the same time, it wants to open new factories in China.