SGL Surges on Plan to Boost Carbon Fiber Production With BMW

Feb 17, 2014 11:44 am ET

(Updates with closing share price beginning in first paragraph.)

Feb. 17 (Bloomberg) -- SGL Carbon SE surged 13 percent, the most in nearly five years, after Bayerische Motoren Werke AG said the two companies are building a second production hall at a jointly run plant to meet rising demand for carbon fiber.

Munich-based BMW, the world’s largest luxury-car maker, introduced the i3 electric city car in November and will start selling the i8 hybrid sports car in 2014. Both vehicles have a carbon fiber chassis to cut weight and improve fuel efficiency.

“We’re preparing the roll out of carbon fiber material in models beyond the i model range” and the M performance-car unit, Mathias Schmidt, a BMW spokesman, said by phone.

Chief Financial Officer Friedrich Eichiner said in October that the company is considering a production increase for the i3 after early demand for the model exceeded the automaker’s expectations. BMW has received 11,000 orders for the compact city car, which will cost $41,350 in the U.S., and expects to sell more than 10,000 i3s this year.

“There’s growing confidence among investors that carbon fiber works” as a technology for carmakers and other industries, said Bjoern Voss, a Hamburg-based analyst at M.M. Warburg who recommends buying SGL stock. Further expansions will be needed as BMW integrates carbon fiber components in vehicles across its model range, he said.

SGL gained 3.46 euros, the most since March 16, 2009, to 30.71 euros at the close of trading today in Frankfurt. The stock has dropped 6 percent in the last year, valuing the Wiesbaden, Germany-based supplier at 2.18 billion euros ($2.99 billion). BMW fell 1.2 percent to 84.93 euros.

Rising Demand

“We’re preparing for rising demand,” said Tino Fritsch, an SGL spokesman. The two companies operate a carbon fiber factory together in rural Washington state. SGL also makes electrodes for the steel industry and cathodes for aluminum manufacturers.

BMW and SGL are investing more than 100 million euros to double carbon fiber production to 6,000 tons a year, German newspaper Handelsblatt reported earlier today, citing unidentified people close to the company. Schmidt and Fritsch declined to provide exact figures for the increase.

BMW forecast in November weaker fourth-quarter profitability as investments to roll out new models weigh on results. Spending as a percentage of revenue was poised to exceed targets last year and continue at a high rate in 2014 as BMW broadens its lineup and builds new plants, the carmaker said at the time. The outlays led to third-quarter earnings before interest and taxes falling 3.7 percent to 1.93 billion euros.

BMW, Volkswagen AG’s Audi unit and Daimler AG’s Mercedes- Benz are targeting a fourth consecutive year of record sales in 2014 as new compacts tighten the race among the German rivals for the global luxury-car industry’s lead. BMW delivered just 79,600 vehicles more than Audi last year, versus 85,000 in 2012, while the gap with Mercedes narrowed to 193,500 from 220,000.

--Editors: Chad Thomas, Tom Lavell