Wary Investors Lukewarm To BMW Revival Plan; Could AI Surprise?

BMW investors were wary but reassured by the company’s restructuring plan but the share price, which has fallen more than 40% this year, shows no sign of reviving while competitive pressures are likely to provide big hurdles to jump.

BMW’s Capital Markets Day meeting in Munich in late September included talk about using artificial intelligence to help streamline its operations, which, according to investment bank UBS, might produce big new revenue streams for it, and perhaps the rest of the auto industry.

BMW set an automotive profit target of between 3 and 5% by 2028, up from its latest 2.3%, which sounded achievable, according to analysts. The longer-term target, to return to the traditional 8 to 10% target profit margin range, was received with some scepticism, not least because the competitive threat from China shows no signs of slowing down.

A big new luxury SUV above the X7

BMW also announced management cuts and a restructuring plan centred on AI. It will stop making the 2 series Active Tourer and a diesel version of its new 3-Series sedan, while adding an entry-level electric version of the 1-Series and a big new luxury SUV above the X7, aimed at wealthy U.S. buyers. BMW said it was trying to rationalize an overly complex new model offering, shorten lead times, deepen supplier relationships and right-size its dealer network.

“The 3–5 per cent figure is certainly realistic, particularly in view of the cut in investment, but of course still well below the basic margin expectations of pampered premium manufacturers,” said Frank Schwope, automotive consultant and lecturer at FHM Berlin.

Investment researcher Bernstein described the news as the start of a healing process, retained its €82 share price target and “Outperform” rating.

Could AI fundamentally transform BMW, and the industry?

UBS said BMW was in the early stages of its AI plans, while other European manufacturers hadn’t expressed similar plans, which it called “potentially transformative.”