Alpha bmw finance free#

BMW clearly controls the pricing between its automotive and its financial services divisions. Let's get to the important part, where the risk lies. Thus, BMW sees immediately the profit from the vehicle sold to the financial services, and then reconciles it as the leasing expires. Since this happens internally at BMW, reconciliation is needed to offset the revenue and its cost between the two divisions, in order to prevent a double account. At the end of the lease, the financial services division writes on its balance sheet the depreciation expense that comes from the difference between the cost of revenue and the residual value of the vehicle. When the auto division sold the vehicle to the financial services, it wrote on its income statement both the earned revenue and the cost of it. Now, this is where things become interesting. Once the lease is over, the customer either has the possibility to buy the car for its residual value or return it to the lessor and start a new lease. In a low rate environment credit was easy and this led many customers to pick a leased car instead of buying one. The lessor earns an interest on the payment. The financing service division becomes the lessor and leases the vehicle to a customer who pays a monthly fee to use the car, enjoying the good while avoiding the total cost of ownership. The sale however is registered at a normal retail price. At this stage, there is still no purchase from a customer. In order to understand this, I would like to report how, in my previous article, I explained how leasing works:įirst of all, the produced vehicle is sold by the automotive division to the financial services one. In addition, the financial branch can post good results when the used-vehicle market is going upwards, but, if a recession kicks off, then the company would suffer important losses. However, its margins are not very high and the return on capital employed is around 4%, which is not very enticing. In this way, it can claim that it is the leading premium brand in terms of vehicles sold. In short, my research led me to find out that BMW has been betting on increasing its volumes through a strong financial branch. Summary of previous coverageĪbout two months ago, I started covering the stock with this article: BMW Is Approaching An Interesting Valuation, But May Suffer From Leasing Headwinds.

Alpha bmw finance free#

After BMW reported the 1H22 results, I see some concerning data about BMW's strategy, margins, and free cash flow that I would like to share with the Seeking Alpha community. Though BMW ( OTCPK:BMWYY) is a well-renowned brand that leads the premium segment of the automotive industry, there are some aspects of its business model that make me think it is likely to take a harder hit than other automakers during the difficult months that are looming over us. Josefkubes/iStock Editorial via Getty Images Investment thesis