BMW AG

While it is difficult to foresee the full implications for trade of the imminent change in the U.S. administration, we think BMW remains susceptible to possible future deterioration of trade relations between the three major trading blocks--the U.S., Europe, and China--due to a certain mismatch between its pattern of production and sales. So far, BMW's production of larger SUVs (X5 and higher) is concentrated in the U.S., and a sizable share of this is shipped to China and Europe. Conversely, BMW ships high-end sedans such as the 7 series to both the U.S. and China from Europe, in addition to the flow of parts between different locations. However, BMW has ramped up local production in China, and the share of

...We expect BMW's FOCF to strengthen in 2021, but protracted market recovery and high investments will likely constrain the rebound. BMW has consistently generated positive S&P Global Ratings-adjusted FOCF through industry cycles, including during the financial crisis of 2008-2009 (2008 marking a low point of about 600 million). We think good short-term cost management and capex restraint, combined with a further sales and earnings recovery in fourth-quarter 2020, will enable the company to generate meaningful adjusted FOCF of 1 billion-2 billion, or 2% of industrial revenue (excluding the payment of a 1.4 billion pending EU cartel fine) in 2020. That said, in the next three years we forecast BMW's cash conversion to remain well below the high levels of more than 6% adjusted FOCF to sales observed in the recent past. This is primarily due to our expectation of a moderate pace of auto market recovery, paired with the need for high investments in electrification and digital vehicle technology...

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