JPM | EMEA Spec Sits Daily: TKA GY spin, BMW GY note, SMWH LN note

Research evidence excerpt

JPM | EMEA Spec Sits Daily: TKA GY spin, BMW GY note, SMWH LN note

icles. The firm has already

embarked on a cost-cutting offensive across Europe and China in order to protect free cash flow, allowing the firm to

accelerate the product momentum from a point of balance sheet strength.

• Looking ahead - Despite the radical earnings cut, BMW is executing very well as illustrated by Mr. Mertl with regards to

the IX3 orders hitting now ~100k units and we truly believe in the flexibility of the industrial footprint as described by

Milan Nedeljkovic, CEO of BMW, during the call. This will ensure that BMW continues to generate free cash flow,

allowing the firm to react from a point of cash strength (not necessarily Ebit margin) in order to invest in future

products. With all this in mind, BMW in our view will take one-time charges to downsize the production footprint

globally but with a particular focus in Europe. This effectively means that in our view BMW will announce at the

October CMD measures to cut 10-15% capacity in Europe – depending on the market evolution, market share

developments, overall pricing environment and tariff regime. All of this will ensure that BMW can continue to generate a

low but healthy free cash generation in an unusually declining capex cycle.

• Read to other OEMs - We think the Volkswagen group is already three years ahead of BMW and Mercedes Benz

when it comes to resetting its business model in China. Mercedes Benz, in our view, is considering different options

which could allow the firm to turn around its momentum in the Chinese market by 2028/29 (please see our Asia auto field

trip). Other mass-market OEMs such as Renault and Stellantis will face incremental market share pressure in Europe,