European auto stocks are struggling to find direction amid soft consumer demand and ongoing tariff pressures. Yet UBS sees opportunities in two high-end manufacturers—BMW and Ferrari—as the sector heads into third-quarter earnings season.
In its latest report, UBS reaffirmed Buy ratings on both stocks, underscoring their ability to maintain profit margins despite a weakening market backdrop. Analysts expect luxury brands to outperform broader European automakers due to pricing discipline, product exclusivity, and strong brand equity.
The investment bank anticipates BMW and Ferrari will demonstrate resilient Q3 performance, supported by stable demand, favorable pricing, and cost discipline.
BMW: Stable Margins Despite Market Pressures
UBS projects BMW’s Q3 automotive EBIT margin at 5.2%, slightly above the lower end of its 5–7% fiscal 2025 target corridor. Although down from 5.4% in Q2, the decline reflects temporary factors such as dealer compensation costs in China (€0.2 billion) and weaker pricing in that region.
Despite these challenges, BMW’s free cash flow remains solid at around €0.8 billion, buoyed by disciplined working capital management. UBS expects refunds later this year from overpaid U.S./EU tariffs, which could lift liquidity further.
While BMW faces a projected 10% sales volume decline in China, versus earlier guidance of “up to -5%,” the company remains on track to meet full-year EBIT and cash flow guidance. UBS foresees margin expansion in 2026 as capital expenditures ease and the Neue Klasse electric platform rolls out, potentially enabling 12% total cash returns.
Recent recalls in the U.S. and Germany related to starter motor fire risks have created short-term headwinds, but sentiment remains constructive. Berenberg analysts echoed UBS’s optimism, maintaining a Buy rating and emphasizing BMW’s long-term potential amid tariff volatility.
Ferrari: Luxury Leader Eyes Electric Expansion
UBS expects Ferrari’s Q3 sales to reach €1.7 billion, marking 5% year-over-year growth at constant currency, driven by a 6% boost from pricing and product mix. Shipments are expected to dip 2%, but rising customization and strong pricing offset the decline.
Key Q3 projections include:
- EBITDA: €636 million, with a 37.3% margin (down 150 bps YoY)
- EBIT: €474 million, with a 27.8% margin (down 60 bps YoY)
Ferrari’s upcoming Capital Markets Day (Oct. 8–9) is set to draw investor focus as the company unveils its first electric vehicle and outlines new mid-term growth targets. UBS views any short-term price weakness after the event as a buying opportunity, given Ferrari’s consistent execution and industry-leading profitability.
Despite mixed analyst sentiment—HSBC and Deutsche Bank upgraded to Buy, while CFRA issued a Sell—Ferrari remains a standout in the luxury auto segment. UBS argues its pricing power and brand exclusivity continue to justify premium valuations, even amid global economic uncertainty.
As Europe’s auto earnings season approaches, UBS’s twin bets—BMW for operational resilience and Ferrari for luxury innovation—highlight where long-term value still glimmers in a slowing sector.
