BMW valued at a steep discount to its equity

In a business climate that could hardly be more challenging, BMW published fairly reassuring annual results on Friday morning.

New vehicle deliveries throughout FY 2025 were stable compared with 2024, while revenue and profit before tax, interest, and special items decreased by 6.3% and 11.5% respectively.

The dream margins achieved during the pandemic are now long gone. Both the automotive segment and the financial services segment - by far the most profitable - reported operating profits one-third lower than the levels reached in 2021.

The consolidated operating margin is at a 20-year low, with the exception of the subprime crisis and 2020 - the year of the initial Covid shock, which led to a widespread paralysis of the economy.

Return on assets remains at the lower end of its average range, but as BMW has recently reduced its financial leverage, for which it can hardly be blamed, return on equity is lagging behind.

Faced with American tariffs, regulatory hurdles in Europe, and market share losses in China, the resilience of BMW - like that of Mercedes-Benz and Volkswagen for that matter - nevertheless commands a certain respect.

Unlike Porsche, discussed earlier this week in these columns, the Munich-based manufacturer is maintaining its electric ambitions intact, with the long-term goal of this category representing half of the vehicles it sells.

BMW still has an excellent balance sheet and will propose a dividend payment of €4.4 per ordinary share this year. This dividend has only increased by 25% in 10 years, which is insufficient to beat inflation in Germany.

However, it is true that shareholders benefited from exceptional distributions in 2021, 2022, and 2023 to console themselves...

On the stockmarket BMW remains valued at half the value of its equity, i.e. at its historical floor, reached three times over the last 20 years: in 2009 during the subprime crisis, in 2020, and since the end of 2024 following the full-blown rout of the German automotive sector.

With the exception of the pandemic - and the massive distortions it caused - the manufacturer has not traded at its equity value since 2018. BMW achieved EPS of €13 at the time, compared to just under €12 for FY 2025.

Between its discount to equity and its dividend yield now sustainably anchored above 5%, the market is clearly sending a signal that it no longer believes in BMW's ability to deliver earnings growth.