Citi Investment Research downgraded BMW from ''buy'' to “neutral” as it seems that emerging markets in China and the Asia-Pacific region won’t be able to steer its stock due to the slowness of the sales in these regions. Last May, BMW revealed that for the first quarter, its biggest single market was China. During the first five months, the group said that its sales rose by 34.4%, with 135,026 cars and SUVs sold in the country.
The growing wealthy class in China has aided the premium car industry to break one quarterly record after another. However, demand has stayed sluggish in Europe, where automakers have struggled with persistent financial problems and overcapacity issues.
The brokerage said that the automaker growth in the country has slowed down at all levels and the inventories have been expanding. It also said that Mercedes-Benz and Infiniti have already posted sharp discounting. Citi analysts said through a note that that for now, the emerging-markets can’t drive BMW's share price.
Another factor that worries the company is the weak demand in Europe, contributing about 30% of BMW's revenue. This isn’t expected to help the company, particularly due to the weakening market in the UK and Germany.
Citi said that the UK is in recession once again and that auto sales are slowing down while pricing is especially tough. Citi said that it can’t be suggested that European impact on BMW will remain irrelevant. Citi also said that its price target on the stock will be cut from 75 euros to 60 duros. European auto sales in May are proof of how the consumer confidence had been eroded.
It also demonstrates a weakness in the region that’s most affected by the crisis, namely Germany and France. In the first five months, the auto industry group ACEA said that new-car sales in the EU and EFTA countries declined by 7.3% to 5.64 million.