BMW’s Electric Vehicle Investments Shock Profits

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Nov. 5 (Bloomberg) -- Arndt Ellinghorst, head of automotive research at ISI, talks with Guy Johnson about BMW’s investment in electric vehicles and how that will impact profits going forward. He speaks on Bloomberg Television’s “The Pulse.”

At the investment that bmw is making that it is putting it's a team in.

They do that.

They are spending more than one billion euros on the i brand.

They have the most revolutionary approach to electric mobility out of the traditional carmakers.

They take a huge bet, the market should appreciate that.

You see that the stock is/4% -- is slashed 4% because of spending on electric vehicles.

The price is high watering.

The company has been growing 7.5% every year.

They have delivered, the stock has performed fantastically.

It is still a cheap stock.

Why?

If you look at bmw's performance, they are generating in 18% to 20% return on capital.

The stock is trading on nine times earnings.

Every u.s. carmaker is more expensive, every asian carmaker is more expensive.

If the m w was a capital good stock, the stock would be 40% higher.

Daimler has had a better run and trades on a better mobile.

That is because of the launch of the new product, especially smaller cars.

Daimler is more expensive than bmw, bmw is more profitable, growing for the next one or two years.

I would buy bmw overtime or -- over daimler.

This morning was focused on the capex story.

They are spending money, you go through this cyclically.

Do we understand how much money is going to have to be invested into electric haitian -- electrification.

Two meaty targets germany and the car industry wants -- to meet the targets.

If you look at european regulations, every carmaker is meeting those targets.

We are losing to 95 by 2020. you need to increase electrified powertrains, bmw is the most aggressive in that area.

They are taking a bet with this new brand and the technology of carbon fiber.

The market should appreciate that and not hammer the stock down.

How easy is it to get the talent to do this?

Elon musk says there is almost better talent in europe with the electrification story.

Is it possible europe will have an advantage?

Europe has an advantage building cars.

It is important to integrate the battery into a car, manage the drive train and a friend features of the service -- and integrate the features of the service.

The mindset, especially in germany, has to change.

Going into traditional internal combustion engines.

There is a fear that if you think through the electric vehicle, there are things disappearing from cars.

That could mean jobs lost in the industry.

Just to switch gears, excuse the pun.

The foreign exchange story.

All these guys have $50 million to $20 billion exposure, that has increased with china.

Most of them are hedged.

Daimler is hedged 55% for next year, bmw is hedged 70%. i think we see 300, 400, 600 million euro headwinds.

Those are big numbers.

Absolutely.

Then the question is, if currencies stay where they are, who knows.

These hedges are rolling off, the pain could be bigger.

That is why it is important to build up capacity in areas where they sell the cars.

To come back, to broaden the net in terms of compare and contrast.

You clearly like bmw.

Looking at the other hand, if i am developing a long stroller -- long-short strategy.

We would be long bmw and peugeot.

It is a 60 billion revenue business.

70% of revenues and western europe.

European demand is recovering, that is our high that.

Bmw is more conservative.

You generate all for by being long these two names.

I was sure the sector.

Take the basket and put it at the other end.

Arndt ellinghorst boeing joining us, head of automotive research at isi.

We speak to people behind the hit show homeland.

Find out what else they have in store and how they plan to stack up to big-budget competition in the u.s. and u.k.. ?

This text has been automatically generated. It may not be 100% accurate.

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