The big comparison of carmakers: $BMW
& $MBG
in China
Hello folks,
as announced, this time comes a contribution "from stock" about Mercedes and its role in China. Unfortunately, this time not so many people have warmed up for the comparison of car manufacturers. But I hope that you will still be interested in the article!
As always, we start with my disclaimer:
Disclaimer: This is not investment advice. It is also not an invitation to buy / sell financial products. I only describe my opinion here. You have your own responsibility towards your investments. So I also assume no liability.
Many of you will surely remember my contribution to BMW, which even won the CCF. But since we start from 0 with Mercedes, I suggest the following structure:
Mercedes in China
Part 1
- Importance of China for the automotive industry
Part 2
- Fundamental analysis on Mercedes
Part 3
- BYD vs. Mercedes (optional)
In the first part I will give you some basics about the Chinese car production and the special cluster construction in China including the resulting problems for German car manufacturers like Mercedes.
In the second part I will present the corporate strategy, the core products as well as an intuitive valuation of the Mercedes share. Based on this, we will get to know a special feature of Mercedes and make a final conclusion against this background.
Before this is asked: Tesla is not the subject of this series and does not pay dividends. Since I mainly live out my dividend investing side here on Getquin (and no one has asked about my tech portfolio yet), let's leave it at that for now.
If, contrary to my expectations (you're all mostly invested in dividend stocks with core ETF), you're interested in a Tesla stock analysis, drop me a line in the comments.
Importance of China for the automotive industry
- "The fact that one makes such a quick belly landing as now in China, surprises many" - Prof. Dr. Ferdinand Dudenhöffer referring to the price & sales policy of Mercedes not only in China (1)
What do you think of when I say German automotive industry? Usually, besides transformation, energy prices also various brands come to the table. Often, Mercedes is among them - a primal rock of German automotive engineering.
What is less considered: Mercedes, like many other German car manufacturers, is in the midst of several crises, of which the China crisis mentioned by Prof. Dr. Dudenhöffer is, in my view, the most obvious.
With a gross national product of 17,744.64 billion USD in 2021, China ranks second in the ranking of the largest GDP countries, and in Asia it even represents the largest economy in Asia. There is also no other Asian country with as many potential buyers in absolute terms. In 2022, China's total population was 1,425.89 million and it occupies an area of 9,596,960 square kilometers (see (2), (3)).
What does the area matter?
The area is highly relevant. China is made up of multiple industrial and/or residential clusters that can contain multiple industries, companies and products. BUT: What if I told you that China has a mini-Germany, mini-Italy, and mini-Mexico?
No I wasn't drinking - that's actually true. If we focus on the 3 most important of the industry and residential clusters mentioned, the following are obvious:
- Jing-Jin-Ji
- The Yangzte River Delta
- The Pearl River Delta
What do these clusters have to do with Germany, Italy and Mexico? Are there many inhabitants from these countries?
No. But their GDP - gross national product.
Yes, that is really true. A single cluster of them can rival our country's GDP - and that despite the fact that we rank 4th among countries with the largest GDP. The related study was already published in 2016 and points out the structural superiority of these cluster planning in city and factory construction (see (2), (3), (4)).
If we take the 2016 figures as an example, we can see that Jing-Jin-Ji is our mini-Mexico. The Yangzte River Delta was $2.76 trillion in 2016, roughly on par with our GDP and even exceeding France's GDP by:
1-(2.76 trillion USD / 2.473 trillion USD) = 11.61%.
Yes, read correctly - a single Chinese cluster is enough to outperform one of the most important countries in Europe (see (5), (6), (7)).
That leaves the Pearl River Delta. This comprises 85 million inhabitants, covers 1,989 square kilometers, and reached a GDP of USD 1.38 billion in 2016. Italy, for comparison, has a land area of 302,073 square kilometers. Italy was approximately USD 1.877 billion (see (7), (8)).
Yes those were certainly exceptions and the trend is back to us in Europe?
Unfortunately no. In the case of the Pearl River Delta, one observes increasing growth in the period from 2011 to 2021 and was at 7.9% growth in 2021 DROUGH Corona, inflation and other impediments for the industries (see (8),(9),(10)). In this regard, a look at the annual GDP growth rate since 2012 even highlights the Pearl River Delta's underperformance compared to the national average. This was 8.08% in 2021, so this production cluster is an example of a rather weak cluster of China in terms of growth.
With all that acreage, all that growth, all those great clusters, there must be tremendous opportunities, right?
In theory, yes - because the clusters are so large and comprehensive that they span multiple geographic regions and divide themselves into "first-tier" and "emerging.
So what you're doing with your portfolio, if applicable, with emerging markets, China is already doing with its clusters. Before it was cool.
The resulting opportunities can be seen here exemplarily in the settlement e.g. in Guangzhou (city near Shenzhen) or in Dongguan. The latter is exemplary for "emerging cities," i.e., for up-and-coming cities whose standards may still be below those of Guangzhou in this example.
How is the German automotive industry reacting?
Radically. Source (11) shows, for example, that BMW no longer has its X5 bestseller, the full-force BMW 3 Series and most of its model series built in Germany, but in China (cf. (11)).
Yes read correctly. One of Germany's bedrock companies builds in China and relies on their cluster concept. For this, BMW uses a kind of joint venture with BMW Brilliance Automotive GmbH, founded in 2003. This is more or less an amalgamation of group resources from the BMW Group and the Brilliance Group, which deals with purchasing, production and sales of BMW vehicles in China. It is an employer for 23,000 employees and has built 700,000 BMW vehicles in 2021 ALONE. On their website, they list the typical models - from the BMW 1ner to the X-series to the (partially) electric vehicles around the BMW i3, almost everything is available (cf. (12), (13)).
Everything is made by Chinese hands and produced in exemplary fashion at the sites in Dandong and Tiexi. But that's not enough - because in April 2022, they even added on and that by an area of 125 soccer fields. Obviously, business is good (see (13)).
In addition, already in 2012, an overwhelming majority of the Chinese surveyed, 92%, rated their standard of living as significantly higher than that of their parents. Only 2% said their standard of living had deteriorated. With 2012, this was still BEFORE the great growth of the 2010s (see (14)).
Today, this elevated standard of living is having a significant impact on mobility trends. Suddenly, it is possible for almost every Chinese to own a car. Unfortunately, this leads to abstruse traffic jams, as Beijing's registration figures show. Massive traffic jams already occurred around 2014, so that people could travel 500 meters in half an hour (see (14), (15), (16)).
Yes but they have issued limited license concepts, haven't they? Don't German carmakers now have to fear for their status?
Rather not - in China, a car is considered a significant status symbol, so the limited continent has rather increased the perceived value. Thus, the opposite of what was originally intended has been achieved: Less road congestion - fewer cars. What has been achieved is more interest in cars, the same traffic jam times, and a measly 2% decrease in new registrations.
So golden times for carmakers?
So we can already see that the topic of "carmakers in China" is a multifaceted one. The fact that significant resources in the form of the BMW model series have been withdrawn from Germany and are instead being manufactured in China is already an exclamation mark.
That apparently with such great satisfaction that is grown and....
No not quite right - "100%" satisfied are not the German car manufacturers.
Why?
I'll tell you in the next part of my exploration of the Chinese automotive market!
Do you find the topic interesting? Do you want a second part?
If you feel like my dividend stocks for this March after this rather market-heavy topic, feel free to check out my YT channel. Thanks for 350 YT subscribers!
YOUR BASS-T
Sources
(3) https://de.statista.com/themen/135/china/#topicOverview
(6) https://www.destatis.de/EN/Press/2017/01/PE17_010_811.html
(8) https://countryeconomy.com/gdp/italy?year=2016
(9) https://www.statista.com/statistics/1172880/china-gdp-growth-rate-of-the-pearl-river-delta/
(10) https://www.statista.com/statistics/263616/gross-domestic-product-gdp-growth-rate-in-china/
(11) https://www.focus.de/finanzen/boerse/f100/x_id_29252510.html
(12) http://www.bmw-brilliance.cn/cn/en/pr/bba.html
(13) http://www.bmw-brilliance.cn/cn/en/pr/shenyang.html
#mercedes
#china
#etfs
#emergingmarkets
#deutschland
#automotive
#bmw
