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Industry Spotlight

Will European auto stocks continue to motor forward?

As the coronavirus pandemic brought economic activity to a grinding halt at the start of the year, European auto stocks went into reverse. Many have since recovered, outperforming the broader market in the last six months.

Since the start of the year, Daimler’s [DAI] share price is down 5.9%, but it’s up 112.7% since its March low (through 22 September). It’s a similar story for BMW’s [BMW] share price, which is down 12.5% and up 69.6% respectively. Volkswagen’s [VOW3] share price, meanwhile, is down 23.5% and up 54.6%.

Bucking the trend slightly, Ferrari’s [RACE] share price is up on both accounts, with gains of 11.6% and 42.8%.

The brief but sharp decline in share prices in the second half of February can be attributed to the fact that automotive manufacturers were forced to temporarily shutter their factories and suspend operations.

The Stoxx Europe 600 Automobile and Parts index is down just short of 20% in 2020, but up 56.2% since its March low, meaning the industry has performed better than the broader Stoxx 600 index, which is down 14% since the start of the year and up 27.9% since March-lows.

56.2%

Stoxx Europe 600 Automobile and Parts index price rise since its March low

 

Pan-European sales were down almost 52% year-over-year in March, based on new registration data from the European Automobile Manufacturers Association (ACEA). Manufacturers reacted quickly, though, and the majority were up and running again by the end of May. 

Ferrari was, arguably, the hardest hit, with its two main factories situated in northern Italy, one of the major initial COVID-19 hot spots. In the second quarter, revenue was down 42% year-over-year, with vehicles shipped dropping 48% — ACEA statistics show that vehicle registrations in Italy were down 85% on the March 2019 level. 

While the pandemic may have affected the production and delivery of luxury supercars, the demand to drive them hasn’t let up.

According to Louis Camilleri, CEO of Ferrari, customer morale is as high as ever and the order book is filling up — orders made during the three months to June were up double-digit percentage points versus the year-ago quarter. 

 

Turnaround for Daimler?

Daimler, which owns Mercedes-Benz, saw its group’s total sales for the second quarter slump by 34% year-over-year, from 821,700 in Q2 2019, to 541,800 in 2020. 

However, despite revenue for the three months to the end of June slipping 29% year-over-year to €30.2bn, the German manufacturer is seeing strong demand for Mercedes-Benz cars.

34%

Daimler's Q2 sales YoY decline

 

It’s predicting that the upcoming release of the seventh generation Mercedes-Benz S-Class will offset any losses as a result of the pandemic. The forecast is that sales of the latest model of its luxury sedan — one is released approximately every seven years — will drive the company to profitability in 2021. 

This would be something of a turnaround considering that when Ola Källenius, the CEO of Daimler, joined in May last year, the manufacturer was facing more than a billion euros in costs. These related to faulty airbags, recalls and government fines and lawsuits. The company had also been caught up in the so-called Dieselgate scandal, which saw them fined for selling cars that had skirted emission regulations. 

One of the reasons luxury automotive manufacturers have seen increased demand for their vehicles is because a significant percentage of total vehicles sales come from China — between 30% and 40% for Daimler. The country has seen a more rapid recovery compared to economies in Europe. 

China has also been a bright spot for BMW, thanks in part to a partnership with Brilliance Auto [1114]. In the second quarter of its fiscal year, BMW saw sales slide 25% year-over-year to 485,701, but sales in China rose a healthy 17%, with 212,617 vehicles delivered.

BMW’s most robust segment globally was its clean energy vehicles, including Mini Electrics and plug-in hybrids, which saw sales drop by just under 5% year-over-year in Q2, but sales increase 3.4% for H1. While the segment only accounts for around 7% of total sales, its resilience has emphasised the power of clean mobility. 

 

The future is electric

There is a general consensus among automotive industry leaders that the pandemic will be a boon for electric vehicles in the long-term. Vincent Cobée, CEO of Citroën — part of French manufacturer Groupe PSA [UG.PA] — said at the launch of the C4 model in June that a combination of pandemic financial recovery-related incentives on new car sales and targeted reductions in CO2 emissions will accelerate demand for electric vehicles. 

Despite the impact of the pandemic on operations, Groupe PSA, also the owner of Peugeot, posted a surprise profit for the first half of its fiscal year. Revenue for the six months to the end of June was €25bn, down 34% year-over-year, while net profit fell 67% from €1.8bn to €595m. 

€25billion

Groupe PSA's half-year revenue - a 34% YoY drop

 

The group has 13 ratings on MarketBeat, of which eight are Buys, two are Holds and three are Sells. 

The site shows there are currently 11 ratings for Ferrari, with eight Buys, one Hold and two Sells.

BMW has 17 ratings, of which eight are Buys, eight are Holds and one is a Sell.

Daimler has 21 ratings, of which seven are Buys, nine are Holds and three are Sells.

There are likely to be some bumps in the road ahead for automotive manufacturers, yet the majority seem well-positioned to ride out any issues. 

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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