BMW at €85/share. Market cap of €52 billion. Revenue of €142 billion. On the surface, it looks cheap. But the EV transition is reshaping the auto industry, and the market seems uncertain about BMW's future.

I built a DCF model to cut through the noise. The result: BMW is fairly valued, with our Base Case at €89/share—just 5% above the current price.

The Quick Take

The range is wide because DCF models are sensitive to assumptions—especially for capital-intensive businesses like automakers. But the Base Case tells us: the market has mostly priced in EV transition risk.

Why BMW Is Tricky to Value

BMW isn't just selling cars. It's funding a multi-billion euro transformation to electric vehicles while maintaining profitability. That means:

• Elevated CapEx for the "Neue Klasse" EV platform
• Margin compression from battery costs and R&D
• Uncertainty about EV adoption rates and competition

The reported beta of 0.77 feels too low for this kind of risk. I adjusted it to 1.15.

The Model

Free Cash Flow Forecast

I projected 5 years of FCF using conservative assumptions:

assumptions = {
    "revenue_growth": [0.01, 0.015, 0.015, 0.02, 0.02],
    "ebit_margin": [0.09, 0.09, 0.085, 0.085, 0.085],
    "capex_ratio": [0.085, 0.085, 0.08, 0.08, 0.075],
    "tax_rate": 0.30,
    "terminal_growth": 0.015
}

FCF stays relatively flat—elevated CapEx offsets revenue growth. This is the "investment phase" of the EV transition.

Cost of Capital

The discount rate is where many valuations go wrong. Here's my approach:

Key choices:

• Beta of 1.15 (not the reported 0.77)—cyclical autos deserve a risk premium
• 70/30 equity/debt mix—based on industrial operations, excluding captive finance

Terminal Value

After 2029, I assume 1.5% perpetual growth (roughly nominal GDP):

This gives an implied EV/EBITDA of ~6.5×—reasonable for a mature automaker.

Bridging to Equity Value

Wait—€103? That's higher than my Base Case of €89. What gives?

The €103 comes from a single-point DCF. But DCF models are unstable for high-capex businesses. To get realistic bounds, I ran scenarios with narrower parameter spreads:

The Base Case reflects a more skeptical view: slower growth, tighter margins, higher discount rate.

What Could Go Wrong (or Right)

Bear Case (€64): EV transition struggles. Chinese competition crushes margins. EBIT falls to 5-6%. The stock has 25% downside.

Bull Case (€125): Neue Klasse succeeds. BMW defends premium pricing. Margins recover to 8%+. The stock has 47% upside.

The probability-weighted expected value (25/50/25) is €92/share—still only 8% above market.

The Bottom Line

BMW is fairly valued at current levels. The market has priced in:

• EV transition headwinds
• Margin compression
• Elevated investment needs

There's no obvious mispricing here. If you're bullish on BMW's EV execution, there's upside. If you're worried about competition and margins, the downside is real.

What to watch:

1. EBIT margin trajectory (target: 9%+ by 2027)
2. Neue Klasse sales volumes
3. ROIC vs WACC spread

The investment thesis ultimately depends on one equation:

At €85, you're betting BMW can earn returns above its cost of capital through the EV transition. The model says it's a coin flip.

Further Reading

📄 Full Technical Paper — Complete methodology, all assumptions, sensitivity analysis, and appendix.

📓 Jupyter Notebook — Reproducible Python code with live data. Run it yourself.

Disclaimer: Educational content only. Not investment advice. DCF models involve significant uncertainty.