UBS analysts have made changes to their ratings in the European automotive sector. They have downgraded Mercedes-Benz Group AG to a "neutral" rating and upgraded BMW to a "buy" rating. This shift reflects a reevaluation of the companies' near-term performance and market positioning.

Downgrade of Mercedes-Benz

The downgrade of Mercedes-Benz is due to concerns about the company's core business challenges, particularly in the Chinese market. The economic slowdown and reduced consumer demand in China are impacting sales. UBS has lowered its target price for Mercedes-Benz, indicating a cautious outlook for the company.

The analysts anticipate that the rollout of new vehicle platforms will initially affect margins due to substantial investments required in technology and infrastructure. This transition period is expected to be tough, with forecasts suggesting a decline in earnings per share for 2025.

• UBS analysts predict ongoing margin pressure for Mercedes-Benz, with projected EBIT margins falling in 2025 and 2026.
• The macroeconomic environment and regulatory pressures regarding CO2 emissions further complicate the outlook for the company.
• The forecast for Mercedes-Benz's free cash flow is also troubling, with expectations of a drop.

However, UBS acknowledges that the company's capital allocation strategy may provide some support to its stock price. Clarity on earnings will be essential for restoring investor confidence in the brand.

Upgrade of BMW

In contrast, UBS has upgraded BMW to a "buy" rating. Analysts highlight BMW's ability to generate consistent free cash flow and deliver strong returns to shareholders as standout features.

The forecast for BMW's auto EBIT margin is expected to stabilize in 2025, driven by slightly higher revenues. BMW's shareholder returns policy, including dividends and share buybacks, is anticipated to yield a sustainable return in the coming years. The upcoming launch of BMW's "Neue Klasse" vehicle platform is expected to drive growth starting in 2026.

• UBS analysts also note BMW's superior positioning in terms of compliance with European CO2 regulations.
• The company's low fixed cost base in its joint ventures in China provides a buffer against potential margin erosion.
• BMW's proactive approach to capital allocation and focus on shareholder returns place it in a strong position to weather industry challenges.

The contrasting trajectories of Mercedes-Benz and BMW highlight the dynamic nature of the European automotive sector.