- I sold Daimler last month for $22 a share with a decent profit of nearly 50% after the stock gained nearly 270% since March 2020.
- BMW has a greater product range and has taken the lead in the electrification race in Germany.
- While Daimler's stock has surpassed its fair value, the BMW preferred shares are still undervalued.
- I'm going to demonstrate similarities and major differences between the businesses of Daimler and BMW and I'm going to analyse their effects on shareholder returns.
1. Investment Thesis
Daimler (OTCPK:DMLRY) is a German large-cap company with a market cap of over $95 billion. It is a constituent of the most important German stock index DAX30 and has the fifth biggest market cap in Germany as of March 2021. The company is best-known for its brands Mercedes-Benz, Mercedes-AMG, Mercedes-Maybach and Daimler Trucks. The Mercedes EQC is the company's flagship of electrification.
Daimler started its project "Ambition2039" two years ago to achieve emission neutrality by 2039. This year the company plans to introduce four new models (EQA, EQB, EQE and EQS) to the market to attack competitors like BMW (OTCPK:BMWYY) and Tesla (TSLA).
Despite embracing the new reality and responding to customers' requests, Daimler's push for electrification lacks speed to catch up with the German rival BMW. As a result, shareholders should expect more satisfying returns with BMW shares than with Daimler shares, especially at current share price levels.
2. Business comparison
Daimler and BMW are by numbers not the top ten car sellers in the world, but they serve the premium segment which results in higher profitability compared to other car companies. However, 2020 was a challenging year for nearly all companies. Total car sales in the largest markets (Europe, Russia, USA, Japan, Brazil, India and China) contracted by 15%.
Daimler and BMW suffered from decreased sales:
|2019||2.34 million||2.50 million|
|2020||2.16 million||2.33 million|
|change||- 7.7 %||- 6.8 %|
|electrified cars 2019||0.049 million||0.076 million|
|electrified cars 2020||0.160 million||0.193 million|
|electrified cars' percentage of total sales 2020||7.4 %||8.3 %|
BMW is ahead of Daimler in electrification of its product range. This advantage helped BMW to stabilize sales in the fourth quarter of 2020 with the consequence that the company's total sales didn't decrease as much as Daimler's sales. Although Daimler achieved a higher percentage increase of electrified cars, BMW still sold a higher number of electrified cars compared to 2019.
Recent numbers for the first quarter 2021 indicate that BMW keeps up the momentum for electrified cars.
|Q1 2020 (electrified cars sold)||0.024 million (e)||0.030 million|
|Q1 2021 (electrified cars sold)||0.059 million||0.070 million|
|total sales||0.591 million||0.637 million|
|percentage of total sales||10.00 %||10.99 %|
Both companies managed to increase the percentage of electrified cars in the first quarter. Daimler does not really catch up with BMW which increased total sales by over 33% while Daimler grew 25%.
By the end of 2021, Daimler aims to offer the same number of pure electrified and plug-in hybrid cars than BMW:
|Daimler electrified cars||price range in € (for Germany)||PS||range in km|
|BMW electrified cars||price range in € (for Germany)||PS||range in km|
Advantages for Daimler:
Daimler offers cheaper plug-in-hybrid cars with a greater range than BMW.
Advantages for BMW:
BMW offers cars with a more diversified power (170-530 PS) and a greater range (+104 km by the end of 2021). Its BMW i4, when introduced at the end of 2021, offers customers great value because it is cheaper than Daimler's EQC while offering more PS and a bigger range. BMW i4 could be the new flagship for Germany's premium segment of electrified cars.
Another big advantage for BMW is the BMW i3 since it has a lower range for customers who are less focused on PS and who prefer a relatively cheap and affordable pure electrified car in cities or for shorter trips. Furthermore, the plug-in-hybrid models have more power and offer wealthy customers luxurious cars within the premium and luxury segment.
All in all, BMW seems to offer a more diverse product portfolio than Daimler with a greater value for customers. Although Daimler wants to catch up or overtake BMW with regard to the numbers of electrified cars sold, the launch of the BMW i4 will be a game changer.
Both companies are part of the DAX30. BMW also has preference shares which make up to 10% of total shares outstanding.
|number of shares (bn.)||share price in $||market cap ($ bn)||P/E||CAPE7||P/B||yield|
|BMW||0.660||82.10 (preferred)||67.77||12.0||7.3||0.6||2.8 %|
Daimler: $1.01 (EPS20); $1.89 (average EPS14-20); $0.4 (DPS20)
BMW: $6.82 (EPS20); $11.23 (average EPS14-20); $2.3 (DPS20)
Based on fundamentals, the BMW preference shares are much cheaper than Daimler shares. Trading below book value and offering a higher yield in combination with a lower payout ratio (33% vs. 39%), BMW shares have a greater upside potential than Daimler while the company expects a significant increase of revenues and earnings in 2021.
Daimler will catch up with BMW as the company will offer a similar number of electrified and plug-in-hybrid cars by the end of 2021. However, BMW's models seem to be more diverse and offer more value for customers. With the launch of the BMW i4, BMW is likely to increase the lead in electrification.
Shareholders can expect a better return when buying BMW preferred shares with an expected return of 8-9% p.a. at least, while Daimler shareholders can't really expect more than 4-5% annually in the next few years as long as the company does not overtake its German rival BMW.
This article was written by
Analyst’s Disclosure: I am/we are long BMWYY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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