Citi reiterated a Neutral view on BMW, telling investors that while the automaker's price looks unusually low relative to its balance sheet, ongoing problems in China and a lack of immediate earnings catalysts mean the shares are unlikely to break out of a range anytime soon.
The brokerage noted that concerns about BMW's China operations have been well documented following multiple profit warnings across the past two years. Citi expects BMW's automotive EBIT margin guidance - set at 1% to 3% for fiscal 2026 - to remain well under the company's long-term targets.
On volumes, the analysts model a significant pullback in China vehicle sales. Their projection shows sales contracting from a previous peak of about 800,000 units to roughly 500,000 units this year, with a further decline to between 300,000 and 350,000 units by 2030. Citi attributes the downshift to mounting competition from domestic electric vehicle makers, geopolitical tensions and persistent pricing pressure, and believes these factors will hinder a meaningful recovery.
As a result, Citi expects earnings generated in China - which reached roughly c5 billion at their high point in 2023 - to drop to below c1 billion in the current year. That dramatic fall in China profitability is a central reason the brokerage sees limited upside in the near term.
Investor attention, Citi says, is now focused on BMW's Capital Markets Day in September. The event will be the first major forum for new Chief Executive Milan Nedeljkovic to set out a longer-term strategy. According to the note, market participants are likely to zero in on any announced cost-reduction steps and restructuring measures, since management has limited avenues to markedly improve profitability simply by growing sales in the near term.
To move automotive EBIT margins closer to a mid-single-digit range, Citi estimates BMW may require as much as c3 billion of cost savings and portfolio adjustments. The brokerage frames this level of savings as necessary to push margins toward a 6% to 8% range over the medium term.
Citi also argued that for established automakers the emphasis is shifting away from growth and toward cash generation and shareholder returns. In that view, stronger free cash flow and an increase in share buybacks could form a more durable investment proposition than relying solely on earnings expansion.
Even so, Citi acknowledged BMW's valuation is unusually depressed. The stock is trading below the company's net industrial cash position, and there is additional latent value in its financing arm. Despite that, the brokerage cautioned that weak earnings expectations, the lack of immediate catalysts and the continued strain in China will likely keep investors on the sidelines until management provides clearer strategic direction later this year.
What to watch next - The market will look for concrete cost-saving targets and portfolio moves at the Capital Markets Day in September, and for any signs that Chinese demand pressures are stabilizing. Until such clarity appears, Citi expects the shares to remain range-bound despite a valuation that appears to embed a margin of safety.