BMW stock forecast: Semiconductor shortage still poses risks
By Jenny McCall
15:00, 30 September 2021
Bayerische Motoren Werke AG (BMW Group), which roughly translates into Bavarian Engine Works Company, is a German automotive company producing and selling cars and motorcycles worldwide.
BMW’s roots date back to 1916, with the merger of two engine manufacturers. The company’s famous emblem, which reflects the Bavarian state colours of blue and white, has appeared on products since 1917.
Today, BMW is a bellwether brand associated with luxury. It owns the BMW, Rolls Royce and MINI brands. As of 2020, the company was the 10th largest automaker with 2.7% of global market share, according to data compiled by Statista.
But despite the company’s success, BMW stock, which is traded on Germany’s DAX 40 index, is yet to recover the peaks it achieved in 2015. Even with its leading market position, the German automaker didn’t escape the problems brought on by the pandemic, such as the semiconductor shortage that plagued most car and technology companies over the last year.
The pressing question for investors is: can the luxury car manufacturer recover those 2015 peaks?
BMW stock price analysis
BMW stock delivered a strong performance in 2021, pleasing shareholders with a solid 18% year-to-date return – slightly higher than the 12.8% return for the DAX 40.
The stock reached a yearly peak of €96.39 ($111.74) on 9 June, before sliding to €75.41 ($87.42) on 20 August. Since then, the price action has moved sideways to higher, with the stock currently trading around €84.5 ($97.98), as of 30 September..
The stock has yet to recover the record high of €123.75 ($143.5) achieved on 2 March 2015.
BMW attributed the level to the introduction of new models and high customer demand.
“The BMW Group’s two-millionth car rolled off the assembly lines back in November. And 2015 marks the fifth time in a row that our German plants have produced well over one million vehicles a year,” a BMW statement said.
In March 2020, during the midst of the pandemic, the share price dropped to $48.01 and has been on a slow climb since then.
BMW latest earnings report
In recent BMW stock news, the company’s half-year report to 30 June showed profitability despite the global semiconductor shortage. At a group level, the company posted profit before tax of €9.7bn, compared to only €498m a year ago, when the pandemic hit the global economy.
Earnings have been driven by higher sales volumes. However, BMW has said that the second half-year will be affected by supply chain bottlenecks and higher prices for raw materials.
BMW says the automotive segment will record a solid year-on-year increase across the BMW, MINI and Rolls-Royce ranges. The company adjusted its full-year outlook for earnings before interest and taxes (EBIT) margin to between 7% and 9% in 2021, compared with the previous forecast of 6% to 8%.
The guidance, however, was dependent on the assumption that neither the pandemic nor the chip supply situation worsened significantly, the company said. BMW warned that its second-half results may be more volatile amid a shortage of semiconductors, supply bottlenecks and high commodity prices.
The warning may have dampened investor enthusiasm, with the stock falling 5.16% following the announcement on 3 August.
Challenges ahead for the German automaker
Covid-19 and Brexit pose risks
The car manufacturing industry suffered a huge hit in 2020, when Covid-19 lockdowns forced showrooms to close for many months. According to the Society of Motor Manufacturers and Traders (SMMT), UK new car production fell -29.3% in 2020 to 921,928 units, the weakest performance since 1984.
In its 2020 automotive trade report, SMMT said that the pandemic and Brexit were “still the biggest threat to the long-term future of the industry”. The members who were surveyed found that one in six jobs in the automotive industry – approximately 24,000 jobs – were at risk of redundancy in 2020.
But SMMT does see better things ahead. “While the pandemic is by no means in the rear-view mirror, the success of the vaccine programme and the reopening of the UK economy means the industry can begin to refocus on recovery and future ambition,” its 2021 sustainability report said.
Semiconductor shortage
Carmakers have endured a global chip shortage as semiconductor manufacturers have failed to ramp up production quick enough to meet global demand. According to the consulting firm AlixPartners’s forecast, the automotive industry is expected to lose $210bn in revenues due to shortages related to semiconductors.
Semiconductor chips are vital components in new vehicles, enabling infotainment systems and more basic parts such as power steering and brakes. Depending on the vehicle and its options, experts say a vehicle could have hundreds of semiconductors.
“Despite short-term challenges, we remain focused on the group’s long-term strategy of leveraging our great innovative strength and sustainable profitability as the basis for successfully shaping the transformation of our industry,” said Oliver Zipse, chairman of the board of management of BMW.
“In doing so, we are committed to finding the best technological solutions to drive forward the progress of digital connectivity and sustainable mobility,” Zipse added in the first-half earnings press release.
BMW stock predictions
According to MarketBeat, BMW has received a consensus rating of Hold, based on four buy ratings, seven hold ratings and three sell ratings. The consensus price target is €98.14 ($113.81), which suggests a potential 16% upside from the current stock price of €84.5 ($97.99). The BMW stock price forecast ranges from the high of €125 ($144.95) to the low of €74 ($85.80).
Note that predictions are often wrong. You should always conduct your own research before making any investment or trading decision.
Is now a good time to buy BMW?
The decision to buy BMW stock must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. Here are some reasons that may support the decision to invest in BMW.
Bellwether brand
BMW is an automaker with more than a century of experience. It’s the 10th largest car manufacturer in the world with a 2.7% market share.
Strong fundamentals
BMW has a strong balance sheet, and its recent earnings report demonstrates its resilience to survive a pandemic, Brexit and a global chip shortage.
Is now a good time to sell BMW?
The decision to sell BMW stock must be based on your own analysis and evaluation. You should consider the company’s stock price and fundamentals. Here are some reasons that may support the decision to sell a BMW stock.
BMW price action
The BMW stock is struggling to repeat the record level of €123.75 achieved in 2015, and it’s unclear whether it ever will. Plus, the stock is currently trading below its yearly peak of €96.39, with the price action moving lower to sideways since June 2021.
Analyst ratings
While the average price target suggests a potential for upside, the average consensus rating is ‘hold’, according to the data from MarketBeat based on the opinions of 14 analysts.
Edited by Jekaterina Drozdovica
FAQ
Is BMW stock a good buy?
BMW is a bellwether brand with a century-long experience in car manufacturing and strong fundamentals. While the consensus price target is €98.86 ($116.35), with a forecasted upside of 16.0%, according to the data from MarketBeat, the stock has a consensus ‘hold’ rating based on the views of 14 analysts.
Note that predictions are often wrong. You should always conduct your own research before making any investment or trading decision.And never invest money you cannot afford to lose.
How to buy BMW stock?
BMW is a publicly traded company on the Frankfurt Stock Exchange. You can buy BMW shares via a broker or a stock-trading platform.
Why is BMW stock falling?
There are multiple factors at play in shaping the BMW share price. One to consider, perhaps, is the mixed forward guidance BMW gave in its first-half earnings report. The company said its second-half earnings may be more volatile amid global semiconductor shortages, supply bottlenecks and rising costs of raw materials.