Automaker stocks have taken a hit as inflation, rising interest rates, and semiconductor shortages are expected to impact their profitability in the near term. But their slumping stock prices reflect a buying opportunity, particularly for automakers in the premium segment of the market.
Consider BMW Group (BMWYY +0.00%), a brand that may not be the first one to spring to mind among automakers, but one that merits consideration.
More than one brand
A casual investor might only think of the company's namesake brand, a premium marque with products that, in the U.S. market, start with the $37,400 BMW 230i Coupe and top out with the $145,000 Alpina XB7. This means the majority of BMW models fall well above the cost of an average new car of $48,281. While its products cater to higher-income consumers, this makes the company somewhat less affected, but not impervious, to a softening economy.
OTC: BMWYY
Key Data Points
Yes, the company does sell Mini, a line of small cars and crossover SUVs that have lower price points, ranging from $28,600 to $48,350, or mostly less than average. But Mini volumes don't come close to those of BMW. In the first three quarters of 2022, Mini held a 0.2% U.S. market share, selling 7,178 vehicles. In comparison, BMW's market share stood at 2.3%, selling 78,031 units.
But it's the final brand that BMW owns that has an outsized influence on the BMW Group: Rolls-Royce. Despite BMW having sold a mere 475 units in the U.S. thorough Oct. 1, their prices start at $343,000 and go up from there, broaching seven figures for the full bespoke Coachbuild models.
Big prices, big impact
The only carmaker that comes close to Rolls-Royce in terms of low production, rarity, high price, and high aspirational luxury value is Ferrari (RACE +0.66%). As we've said before, Ferrari is still a stock to buy despite its price due to its competitive advantages and superior margins.
Assuming Rolls-Royce would have a price and multiple similar to Ferrari's 25-times EBIT (earnings before interest and tax) if it were spun off, that brings Rolls-Royce's value to more than $30 billion based on projected 2023 revenue of 1.22 billion euros. Subtract the company's 24.45 billion euros worth of net cash and you're getting the BMW and Mini brands considering BMW Group's market cap of 52 billion euros.
And BMW has an admirable track record, having posted record profits and gained market share in 2021, and its new electric models are poised to challenge EV market leader Tesla as its EV sales have doubled through Q3., although overall sales are expected to decline somewhat. In its third quarter, BMW Group reported a net profit of 3.18 billion euros, up 23% from last year's 2.58 billion euros. Group EBT (earnings before tax) came in at 4.10 billion euros, a year-over-year increase of 20%. And BMW anticipates a big rise in deliveries in the fourth quarter. Despite the headwinds facing the entire industry, BMW's continue desirable product portfolio and current stock price make it very attractive, even with current automotive segment sentiment.
