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BMW Sees China Car Sales Recovery

William Wilkes
·2 mins read

(Bloomberg) -- BMW AG ended an upbeat quarter for European automakers by warning that the rapidly resurging coronavirus pandemic could wreck a sales recovery driven by strong demand in China.

BMW confirmed its full-year profit forecast on the back of rising sales in China. Still, the German luxury carmaker cautioned that Covid-19 is worsening in Europe’s biggest markets, with fresh lockdowns threatening to crimp demand for its automobiles.

“The pandemic is now clearly regaining momentum,” BMW said Wednesday in a statement. If it worsens and drags down the global economy, “the risk exposure could be considerable, particularly on the demand side.”

Governments across Europe have in recent days restricted public life to contain the spread of the virus, with the U.K. and France announcing partial lockdowns that will also close car dealerships. While those businesses remain open in Germany, Chancellor Angela Merkel’s government is urging citizens to stay home whenever possible.

BMW’s results round off a surprisingly upbeat quarter for carmakers. Peers including Daimler AG, Tesla Inc. and Fiat Chrysler Automobiles NV released third-quarter figures that were better than expected, bolstered by swiftly recovering demand and bigger subsidies for electric cars.

Profit Misses

BMW said its sales in China, the world’s biggest auto market, climbed more than 6% in the nine months through September to a record thanks to an economic recovery that gathered pace after the country emerged from a lockdown in the spring.

The manufacturer said third-quarter earnings before interest and taxes fell 16% to 1.92 billion euros ($2.2 billion). That missed analysts’ estimates of 1.99 billion euros.

BMW declined as much as 3.5% in early Frankfurt trading, valuing the company at about 39 billion euros. Its shares have lost about 18% this year.

Chief Executive Officer Oliver Zipse has embarked on a stringent cost-cutting course to save more than 12 billion euros to help pay for the development of electric vehicles and digital features like automated driving. Free cash flow from the automotive division rose to more than 3 billion euros in the third quarter.

Read this: VW Launches Pilot Project for Green Mobility on Greek Island

The carmaker confirmed it expected an earnings before interest and taxes margin of between 0% and 3% this year. It forecasts sales to be significantly lower than last year after the pandemic shut down factories and dealerships in the spring, when supply-chain issues brought down production from Detroit to Wolfsburg.

There’s no indication yet that manufacturers will have to close factories again. If sales further collapse, however, they likely would be forced to slow output and suffer another revenue setback.

BMW said it’s “monitoring developments closely and remains well prepared to act swiftly and decisively.”

(Updates with shares in 8th paragpraph.)

For more articles like this, please visit us at bloomberg.com

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©2020 Bloomberg L.P.

Latest Stories

  • Jack Ma's Blunt Words Just Cost Him $35 Billion

    (Bloomberg Opinion) -- Jack Ma is a very busy man. China’s richest man has been busy launching the world’s biggest IPO. He has been busy preparing for Alibaba Group Holding Ltd.’s grandest four-day Double Eleven shopping extravaganza. And yet two weeks ago, Ma somehow found the time to opine on China’s banking system at a high-profile financial forum in Shanghai, once again throwing himself into the eye of the storm. In that speech, apart from labeling the global banking Basel Accords as an “old people’s club,” Ma said “systemic risk” is not the issue in China. Rather, China’s biggest risk is that it “lacks a financial ecosystem.” Chinese banks are like “pawn shops”, where collateral and guarantees are the hard currencies. As a result, some decided to go so big they are not allowed to fail. “As the Chinese like to say, if you borrow 100,000 yuan from the bank, you are a bit scared; if you borrow a million yuan, both you and the bank are a little nervous; but if you take a 1 billion yuan loan, you are not scared at all, the bank is,” Ma said. The consequences came this week. On Monday, Beijing’s top financial watchdogs summoned Ma and dressed him down. Beijing also issued draft rules on online micro lending, stipulating stricter capital requirements and operational rules for some of Ant Group Co.’s consumer credit businesses. But the big shocker came on Tuesday night. The Shanghai Stock Exchange suspended Ant’s listing on its Star board, citing Monday's meeting and subsequent regulatory changes. Ant then said in a filing it would suspend its Hong Kong IPO as well. The fintech giant was scheduled to start trading on Thursday. The news sparked a slide in Alibaba shares on Tuesday in New York, while dragging down other Chinese companies’ U.S.-listed stocks.What Ma said was a bit sensational, perhaps. But he was right. China’s bankers are so averse to extending credit to smaller borrowers that Beijing redefined “inclusive financing” to make its banks’ loan books look prettier. In fact, it’s been so difficult for small businesses to obtain bank credit in the last decade that they have become hard wired not to invest for the future. Here’s the latest tidbit of evidence: In the third quarter, even as China’s economy recovered and 86% of 300 smaller manufacturers CLSA spoke to became profitable, most remained wary. A record-breaking 59% of their capital expenses went into mere “regular maintenance,” the brokerage found.Ma’s words were blunt, but these phrases, such as “pawn shops,” are not his concoctions. Bureaucrats at the People’s Bank of China, for instance, had used the same words themselves. So why is Ma being singled out? Could it be that Ant is too profitable and is now being targeted? Ant is raising at least $34.5 billion in an IPO that attracted more than $3 trillion of retail orders. Meanwhile, regional banks are still in the doghouse, struggling and sometimes being restructured because they lack capital buffers. In the fast-growing consumer credit business, Ant is essentially a matchmaker while banks lend and put aside cash in case some loans go sour. Fintech giants are making much more than lenders, city commercial banks complained to local media. Ant’s vast consumer base appreciates its small loan offerings. But going forward, to appease its banks, Beijing may want to level the regulatory playing field. For instance, Ant may no longer operate just as a matchmaker and might be asked to keep 30% of the loans on its balance sheet, compared with only about 2% now. That should have been no problem because Ant’s IPO would have brought in billions of dollars of capital for loan provisions.In its statement, the Shanghai exchange cited the changing regulatory landscape as one reason Ant no longer qualified for a listing. But in reality, nothing has changed. Since 2017, Beijing’s watchdogs have been debating whether to allow online micro lenders to take a simple loan facilitation model or require them to put away loan provisions. This new draft rule is just a continuation of the debate. At the opening of his speech, Ma admitted he was conflicted as to whether to attend the forum and speak up. Now he probably regrets it. But here’s the thing: If China is serious about financial innovation, “inclusive financing” or the digital yuan, let the man who pioneered the business and made billions along the way share his experiences and thoughts. If Ma says systemic risk is not China’s Achilles’ heel, hear him out. He knows where the real problem is and could be part of the solution.(Updates with Alibaba shares in the fourth paragraph. An earlier version was corrected to show China is averse to extending credit to smaller borrowers, not lenders, in the fifth paragraph.)This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • China Plans Deeper Ant Crackdown With Bank Funding Curbs

    (Bloomberg) -- The shock suspension of Ant Group Co.’s $35 billion initial public offering is just the beginning of a renewed campaign by China to rein in the fintech empire controlled by Jack Ma.Authorities are now setting their sights on Ant’s biggest source of revenue: its credit platforms that funnel loans from banks and other financial institutions to millions of consumers across China, according to people familiar with the matter.The China Banking and Insurance Regulatory Commission plans to discourage lenders from using Ant’s platforms and has already asked some to ensure their portfolios are compliant with stringent draft regulations announced on Monday, said the people, who asked not to be identified discussing private information.The proposed measures, which call for platform operators to provide at least 30% of the funding for loans, would render many of Ant’s existing transactions non-compliant. The company currently keeps about 2% of loans on its own balance sheet, with the rest funded by third parties or packaged as securities and sold on.The full scope of China’s plans for Ant are unclear, and it’s possible that lenders will continue to work with the company once it complies with regulators’ requests. Any suggestion that banks would stop using its platforms is “unsubstantiated,” Ant said in a response to questions from Bloomberg. “Ant will continue to support bank partners to make independent credit decisions and leverage Ant’s technology platforms to serve consumers and small businesses.”The CBIRC didn’t immediately respond to a request for comment. Shares of Alibaba Group Holding Ltd., which owns a third of Ant, fell 6.3% in Hong Kong as of 2:31 p.m.“From the perspective of regulators and investors, they all need Ant to provide a better disclosure on the co-lending business,” said Chen Shujin, Hong Kong-based head of China financial research at Jefferies Financial Group Inc. “Ant needs to be aligned with regulations going forward and show that its business model can help lower borrowing costs for the economy rather than raising them with some kind of monopoly.”China abruptly halted Ant’s IPO after summoning Ma to a meeting earlier in the week to outline an array of concerns and new regulations. President Xi Jinping’s government is tightening controls on Ant and other fast-growing financial conglomerates after years of allowing them to operate without capital and leverage requirements imposed on banks.Authorities haven’t yet provided much detail about what prompted the turnabout on the IPO, beyond saying it couldn’t go ahead because of a “significant change” in the regulatory environment.The halt comes after Ma blasted the nation’s financial system and questioned global regulatory models at a high-profile conference last month, calling banks “pawn shops.” China is still a “youth” and needs more innovation to build an ecosystem for the healthy development of the local industry, Ma said.Any funding curbs could deal a major blow to Ant. After getting its start in online payments, lending is now the firm’s biggest business. It has underwritten about 1.7 trillion yuan ($253 billion) in consumer loans and 422 billion yuan in small business loans for about 100 banks and other financial institutions Revenue from its CreditTech unit jumped 59% to 29 billion yuan in the first six months of the year, accounting for 40% of the total.Ant helped provide small unsecured loans to about 500 million people over the past year through two platforms: Huabei (Just Spend) and Jiebei (Just Lend). The former focuses on quick consumer loans for small purchases, while the latter finances everything from travel to education. Ant typically charges annualized interest rates of about 15% to consumers. Its more than 20 million small business borrowers pay an average lending rate of about 11%, almost double the average 5.94% small borrowers can get from banks.Guo Wuping, head of consumer protection at the CBIRC, said in a commentary on Monday that Ant’s Huabei service was similar to a credit card but with higher charges. Financial technology firms use their market power to set exorbitant fees in partnerships with banks, which provide most of the funds required, he said.Ant would have to set aside 95 billion yuan in capital to comply with the draft rules issued by the CBIRC on Monday, or 2.7 times the current capital for its two micro-lending arms, according to estimates from Jefferies.(Updates with analyst comment in the seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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At $5.20 annualized, this dividend yields 6.11%, more than 2.5x the average dividend found among S&P listed companies. The payout ratio of 49.7% indicates that the dividend is safe – current earnings easily cover it, and there is plenty of room for further growth.Covering the stock for SVB Leerink, analyst Geoff Porges noted, "AbbVie had another strong beat and raise in Q3, demonstrating their very resilient business during the pandemic and highlighting strong growth prospects for their core business. Guidance was once again raised, and the company’s comments about mid- to long-term revenue potential for their core products were very positive [...] AbbVie’s valuation seems very attractive at today’s price, and we see substantial upside potential as we expect the stock to revert to its more normalized absolute and relative multiple after the current election blues are resolved in the new year."To this end, Porges rates AbbVie an Outperform (i.e. Buy) along with a $119 price target. This figure suggests a potential upside of 35% over the next year. (To watch Porges track record, click here)Overall, Wall Street is very bullish on Abbvie. There are a total of 8 ratings; 7 Buys and 1 Hold -- all add up to a Strong Buy consensus rating. The stock’s current price is $88 and the average price target is $110.13 suggesting 25% one-year upside move. (See ABBV stock analysis on TipRanks)WesBanco (WSBC)Next up is WesBanco, a bank operating in the region of western Pennsylvania, West Virginia, Ohio and Kentucky with 236 branches. The pandemic has struck financial institutions because of loans in default. 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In an extraordinary turn of events, authorities announced that they had belatedly discovered an array of shortcomings that, by some accounts, might require the sprawling Ant to be overhauled.“The way I’d read it, it’s a deliberate public relations move,” said Sean Darby, chief global equity strategist at Jefferies. “This has happened before when companies appear to have become too big versus the state for the authorities’ liking.”Reaction in the financial market was swift. Ma’s Alibaba Group Holding Ltd., which owns a third of Ant, plunged 7.1% in Hong Kong, after falling by the most in almost six years in New York. The sell-off reduced Ma’s fortune by almost $3 billion. Hong Kong Exchanges & Clearing Ltd., owner of the city’s bourse, dropped 2.2%.The move upends what had been one of China’s biggest business success stories, as well as what was to be a pivotal step in the development of the nation’s fast-growing capital markets.“It’s definitely surprising,” said Mike Bailey, director of research at FBB Capital Partners. “If there is something strange going on on the macro side for China’s financial markets or in the company, that would be worrisome.”In just a decade, Ant, an affiliate of Ma’s Alibaba Group, has exploded into the world’s largest financial technology company, reshaping the lives of many ordinary Chinese. But its ascendance -- and Ma’s growing global reputation -- has also posed a threat to China’s state-run lenders and their political benefactors.Tuesday’s developments left bankers and global investors groping for answers. The immediate fate of the many billions already tied up in the IPO is for now uncertain.Changes NeededChinese authorities didn’t give much detail about the issues behind the suspension, beyond saying that the much-anticipated debut couldn’t go ahead because there had been “significant change” in the regulatory environment.The company will have to make changes that include capital increases at its lucrative micro-lending units, according to people familiar with the matter. It will also have to reapply for licenses for the units to operate nationwide, the people added, asking not to be identified discussing a private matter.The IPO is expected to be delayed by about six months, and funds will be returned to investors in the meantime, news portal QQ.com reported, citing an unidentified person.Major gray market brokers for the deal, including BTIG LLC, told clients all transactions will be canceled, according to people familiar with the matter. Millions of shares were traded in the over-the-counter market prior to Ant’s planned debut, many at about a 50% premium to the listing price of HK$80 ($10.32). BTIG didn’t immediately respond to a request for comment.Ant, which spun out of Alibaba in 2010, has long been seen as a champion of China’s economy and an example of how the Communist Party has allowed entrepreneurs -- especially in the technology sector -- to flourish within its top-down political system. Tuesday’s setback may cast a pall over the country’s financial markets, even as President Xi Jinping tries to create stock exchanges that can rival the U.S.“Ant Group sincerely apologizes to you for any inconvenience caused by this development,” the company said in a message to investors. “We will properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.”There were warning signs on Monday when Ma was summoned to a rare joint meeting with the People’s Bank of China and three other top financial regulators and told his firm would face increased scrutiny and be subject to the same restrictions on capital and leverage similar to banks.“This further reinforces the regulatory pressures building on tech giants,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “It’s good news for banks, bad news for Jack Ma,” he said, referring to the competitive threat Ant poses for traditional lenders.Record IPOThe IPO was on pace to break records. It had attracted at least $3 trillion of orders from individual investors for its dual listing in Hong Kong and Shanghai, and in the preliminary price consultation of its Shanghai IPO, institutional investors subscribed for over 76 billion shares, more than 284 times the initial offering tranche.The fintech company’s IPO would have given it a market value of about $315 billion based on filings, bigger than JPMorgan Chase & Co. and four times larger than Goldman Sachs Group Inc.Dealmakers at firms including Citigroup Inc. and Morgan Stanley were set to feast on an estimated fee pool of nearly $400 million for handling the Hong Kong portion of the sale, but were instead left reeling after the listing was pulled. Top executives close to the transaction said they were shocked and trying to figure out what lies ahead.But Ant has faced scrutiny in Chinese state media in recent days after Ma criticized local and global regulators for stifling innovation and not paying sufficient heed to development and opportunities for the young. At a Shanghai conference late last month, he compared the Basel Accords, which set out capital requirements for banks, to a club for the elderly.And over the weekend, at a meeting of the Financial Stability and Development Committee led by Vice Premier Liu He, officials stressed the need for fintech firms to be regulated.Ant dominates China’s payments market via the Alipay app. It also runs the giant Yu’ebao money-market fund and the country’s largest online consumer-lending platform. Other businesses include a credit-scoring unit and an insurance marketplace.(Updates with gray market trading in 13th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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