Up to -11%: Should investors sell car stocks like BMW and Volkswagen after the crash? Or buy?

With an unprecedented drop in share prices, BMW set off a downward spiral in German car stocks on Tuesday. The already struggling industry is now under even more pressure. Is this really still a dirt-cheap entry opportunity for investors?

In the end, the shares of the German car manufacturer BMW lost more than eleven percent on the stock exchange on Tuesday. The stock landed at its lowest level in years and consequently at the bottom of the DAX rankings. A lowered outlook due to problems with supplied braking systems had previously shocked investors. According to initial information from “Bloomberg”, the problem was faulty braking systems from the supplier Continental, which have now resulted in recalls and delivery stops for 1.5 million cars.

It is therefore no surprise that Continental also closed with a double-digit loss. However, other car stocks such as Mercedes-Benz, Porsche and Volkswagen followed closely behind with daily losses of between three and five percent. VW recently announced extensive cost-cutting measures and formally terminated the job security that had been in place since 1994. Investors are nervous, as shown by the strong reaction of all shares in the sector, even though only one company is currently in focus.

The problems of German auto stocks go much deeper

The German automotive industry has been in crisis for some time. Although the industry is a key sector in Germany with 770,000 employees, companies are currently going through a difficult transformation process due to the mobility transition and other geopolitical factors. Manufacturers such as Volkswagen are struggling with weak sales figures and high costs for switching to electric drives. This is also depressing profits. In the first report, VW reported 14 percent less profit, BMW almost 15 percent and Mercedes-Benz even quickly 16 percent. BMW was now the last player to have to cut its profit targets for the full year. In addition, according to a survey by the Munich-based Ifo Institute, the industry is looking to the future with concern.

This is also due to the sluggish exports, which represent an extremely important sales market for German manufacturers. In Europe and America, however, these markets are shrinking. In China, however, they are growing. But it is precisely there that more and more local competitors are serving customers. China is the new home of the automobile, but the traditional brands from Germany are not getting a foot in the door.

This can still give investors in BMW, VW and Co. hope

Accordingly, experts' price targets for German car stocks are now also conservative. Many analyst firms have been revising their price targets downwards for months. Stocks like VW are dirt cheap at the moment with a price-earnings ratio of around 3, but in the usual market environment investors remain cautious.

After all, experts like DZ Bank still see strategic competitive advantages in BMW in the field of e-mobility at a favorable valuation. And Volkswagen will not stop selling cars overnight either. The strong brand and a lot of cash on hand should help the company through the difficult times. But VW must show a turnaround with new car models like the recently postponed Trinity car. Until then, investors should exercise patience.

With material from dpa-AFX

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