{"id":18971,"date":"2023-06-06T13:29:00","date_gmt":"2023-06-06T17:29:00","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/europes-roller-coaster-auto-market-prospects-confuses-investors\/"},"modified":"2023-06-06T13:29:01","modified_gmt":"2023-06-06T17:29:01","slug":"europes-roller-coaster-auto-market-prospects-confuses-investors","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=18971","title":{"rendered":"Europe\u2019s Roller-Coaster Auto Market Prospects Confuses Investors"},"content":{"rendered":"
\n

Spare a thought for investors trying to figure out a sensible policy for their shares in Europe\u2019s automakers.<\/p>\n

Germany\u2019s economy is idling at best, but forecasts for European auto sales in 2023 are strong. Corporate earnings are under pressure as production returns to normal and competition is reignited. Electric car sales advance, but China is ramping up an assault, which threatens to cream off any profits.<\/p>\n

There are other positives. The European industry has been lobbying for relief from what it considers a particularly onerous and counter-productive piece of CO2 regulation. Their wishes for Euro 7 may be granted. A spat between the European Union (EU) and Britain over post-Brexit trade rules looks set to be solved amicably.<\/p>\n

Investment banks UBS and Morgan Stanley see trouble ahead.<\/p>\n

\u201cWe remain bearish on (the big auto manufacturers),\u201d said UBS in a report. It expects prices to come under pressure as production exceeds demand with corporate earnings dropping 40% in 2023.<\/p>\n

\u201cTesla triggered a price war in EVs (electric vehicles) that will have industry-wide consequences; legacy (manufacturers) will have to follow but with higher cost structures, derailing the narrative of EV margin parity. There should be a knock-on effect on ICE (internal combustion engine) prices too, irrespective of Tesla price cuts, the ICE sector should be much more competitive as production and inventories have grown, while demand has declined in Q4,\u201d UBS said.<\/p>\n

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\u201cWe\u2019re cautious on all mass (manufacturers) for 2023 while preferring more cycle-resistant luxury names (Mercedes, BMW, Ferrari) and Tesla thanks to cost and tech leadership,\u201d UBS said.<\/p>\n

Morgan Stanley has put European auto stocks on its \u201cunderweight\u201d list.<\/p>\n

Many manufacturers reported strong first-quarter profits but were reluctant to claim this would continue through 2023. Many did talk about production being restricted, leading to order backlogs which would be good for the power to maintain prices and profits.<\/p>\n

HSBC Global Research isn\u2019t so sure.<\/p>\n

\u201cThe trouble is that not many observers believe this is sustainable and there are some cracks showing; most notably, mix is weakening. The most obvious signal is, despite a strong first quarter, 2023 guidance (profit hints by companies) was on the whole unchanged,\u201d HSBC said in a report.<\/p>\n

Consultants LMC Automotive raised its forecast for Western Europe\u2019s car and SUV sales for 2023 to a gain of 8.6% to 11.02 million, up from its forecast last month of an 8.0% increase. Last month LMC reminded us that the market is still significantly below the 14.29 million achieved in pre-Covid 2019.<\/p>\n

This was despite news Germany slipped into recession in the first three months of the year. Experts fear the whole eurozone may be in the same boat. According to Bloomberg News, the German economy, Europe\u2019s biggest, might return to growth in the 2nd<\/sup> quarter but might stumble again into a contraction in the 3rd<\/sup> quarter thanks to higher borrowing costs and weak export markets.<\/p>\n

Investors are also worrying that Europe\u2019s response to the electric car revolution led by Tesla, and now being reinforced by big Chinese manufacturers, might be inadequate.<\/p>\n

Bernstein Research quotes a report from the International Council on Clean Transportation (ICCT) saying European manufacturers have committed to spending \u20ac145 billion ($155 billion) since 2016 on the transition to electric vehicles, only to fall behind to Tesla and BYD. It\u2019s not so sure of success.<\/p>\n

\u201cRecent price cuts from Tesla and an EV price war in China have seen investors question whether Europeans are pouring cash into a fruitless endeavour. We believe these investments are necessary, but the markets will need to wait until 2024\/2025 for the first crop of dedicated EV platforms and factories to begin production,\u201d Bernstein said<\/p>\n

BMW and Mercedes have the most to lose from the Tesla\/China onslaught, but are in a strong position.<\/p>\n

\u201cVolkswagen, by contrast, has likely squandered its early advantage. Renault and Stellantis will remain constrained by the more expensive electrified powertrain,\u201d Bernstein said.<\/p>\n

If profits are under pressure, some light relief may arrive with a dilution in so-called Euro 7 regulations. The EU\u2019s anti-CO2 rules, which end in the ban of the sale of new ICE vehicles, are set to change in 2025. Euro 7 rules tightening emission limits for nitrogen oxides and carbon monoxide and are due to start in July 2025. The automotive industry has said these rules will be too costly to implement, and unnecessary and have been seeking a postponement. Italy is leading a rebellion in the EU to block implementation and says it already has enough support to succeed. Maybe a couple of year\u2019s delay will save some money.<\/p>\n

The spat over Brexit rules concerns \u201crules of origin\u201d terms. This threatened to disrupt electric car sales to the EU. Britain\u2019s EU Brexit agreement said from 2024 any car with less than 45% of its parts sourced in the UK or Europe would face 10% tariff, rising to 55% in 2027. This threatened to disrupt sales from Britain to the EU, which in turn would have undermined sales from the likes of Germany and France into Europe\u2019s 2nd<\/sup> biggest market. After a flurry of activity, negotiations have gone quiet, but manufacturers’ demand the rules are postponed until 2027 seems the likely outcome. According to Reuters\u2019 Breaking Views column, Britain bought about \u00a39.3 billion ($10.0) worth of EU electric and hybrid vehicles in November 2022, and exported about half that value to Europe.<\/p>\n

An added worry for the industry is the reappearance of an old industry worry; its tendency to revert to the destructive pile \u2018em high and sell \u2019em cheap policy, which sought sales and market share at all costs, regardless of profit.<\/p>\n

According to Steve Young, managing director of British-based automotive retailing consultancy ICDP, this is gathering pace across Europe, aided and abetted by the move to adopt the so-called \u201cagency\u201d model. This tries to cut dealerships out of the chain, on Tesla lines. It appeals to manufacturers but has many drawbacks, according to Young.<\/p>\n

\u201cAll of these will drive up the cost of distribution rather than reduce it, erode margins and residual values and discredit agency as a legitimate option to run omni-channel retail effectively. We do not know what is around the corner but my fear is that what we will find is a large truck resulting in a very messy car crash,\u201d Young said.<\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Spare a thought for investors trying to figure out a sensible policy for their shares in Europe\u2019s automakers. Germany\u2019s economy is idling at best, but forecasts for European auto sales in 2023 are strong. Corporate earnings are under pressure as production returns to normal and competition is reignited. Electric car sales advance, but China is […]<\/p>\n","protected":false},"author":1,"featured_media":18972,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-18971","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","tag-featured"],"yoast_head":"\nEurope\u2019s Roller-Coaster Auto Market Prospects Confuses Investors | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Spare a thought for investors trying to figure out a sensible policy for their shares in Europe\u2019s automakers. 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