Investing.com -- Jefferies analysts in a note dated Friday have revised their stance on two major German automakers, upgrading BMW (ETR:BMWG) to a "buy" rating while lowering Mercedes-Benz (OTC:MBGAF) Group to "hold."
The shift reflects differing assessments of risk profiles and strategic positioning as both companies navigate challenges in the automotive industry, including electrification, emissions compliance, and exposure to global tariffs.
Jefferies outlined that BMW's consistent long-term strategy offers a lower-risk profile compared to Mercedes-Benz, which is undergoing reorganization.
This view is supported by BMW’s robust approach to segment coverage, reduced dependence on exports to China, and advanced initiatives like the Neue Klasse platform that focus on software-defined vehicles and multi-energy powertrains.
Meanwhile, Mercedes-Benz is expected to announce adjustments to its luxury strategy in February 2025, flagging the ongoing need for repositioning.
A key consideration in the upgrade is BMW's ability to maintain a more balanced earnings profile.
Jefferies noted that BMW is less reliant on premium-end sales compared to Mercedes-Benz, allowing it to better weather global market shifts.
BMW also has a stronger foothold in electric vehicles, with higher EV penetration rates aiding in compliance with EU CO2 reduction targets.
By 2025, BMW needs to cut emissions by 14%, compared to the 22% reduction required for Mercedes-Benz.
Tariff risks also played a significant role in the assessment. Both automakers face exposure to U.S. manufacturing tariffs, but Mercedes-Benz’s heavier reliance on exports to China, especially of high-value vehicles, presents a greater vulnerability.
In terms of investment, BMW is nearing the peak of its capital expenditure cycle, positioning itself to reap benefits from its strategic initiatives starting in 2025.
Mercedes-Benz, however, is expected to continue investing heavily in its realignment, potentially impacting free cash flow.
While both companies are committed to distributing 100% of their annual FCF, BMW's lower reinvestment requirements may provide more stability.
Jefferies has raised BMW’s price target from €80 to €85, underscoring its confidence in the automaker’s trajectory.
In contrast, Mercedes-Benz’s target has been revised downward from €73 to €60, reflecting the challenges of its ongoing transformation.