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China is coming for Europe’s automakers.
That was the message from UBS analysts who downgraded shares of Renault SA
RNO,
and Volkswagen AG
VOW3,
VOW,
to sell from neutral, citing threats from China competition. Shares of Renault tumbled 3.8% to €35, while Volkswagen dropped close to 3%, leaving shares at €109.70.
Renault’s share price was cut to €31 from €42, as a team of analysts led by David Lesne said the French group’s financial performance may be starting to peak just as the China competition threat is ramping up.
“Although we expect financial performance to remain strong over the coming quarters, with even some scope for further positive surprises, most indicators are no longer improving,” said Lesne and his colleagues.
They added that legacy mass manufacturers are at the most risk from structural market losses due to rising competition from China OEMs [original equipment manufacturers] and Tesla
TSLA,
With around 70% of its unit sales exposed to Europe and a 10% share of that market, “Renault is one of the most exposed names here,” said the analysts, who added that the planned initial public offering of Renault’s EV and software unit Ampere is “unlikely to unlock significant value for Renault group shareholders.”
Also hitting the auto sector on Friday was news that Tesla had cut prices of its Model S and Model X cars in China for the second time in two weeks, as the EV giant is also facing increased competition. Shares of Tesla, which fell 3.4% in August, slipped 0.7% ahead of Friday’s Wall Street open.
As for Volkswagen, UBS analysts said the German automaker is the OEM that’s “globally most negatively exposed to the rise of Chinese carmakers.” A former No. 1 OEM in China, the company is “potentially on the path to marginalization and as #1 in Europe, it is likely to be most impacted longer-term by highly competitive Chinese EVs.”
UBS had an initial positive view on Volkswagen, but the group gave up its first-mover advantage in EVs as it executed in key areas below expectations. Its batteries, software and Scout EV unit will generate €15 billion in losses and suck up €30 billion in cash over 2023 to 2027. Meanwhile, the automaker’s partnership with Chinese EV maker Xpeng “has high execution risk,” said a team of analysts led by Patrick Hummel.
China EV maker BYD
002594,
is likely to have a 25% structural cost advantage over Volkswagen, even with local assembly. And the European market is also fast moving into oversupply, said UBS. Volkswagen shares were cut to €100 from €135.
Rival automakers Porsche Automobil Holding
PAH3,
and BMW
BMW,
were down 1.5% and 1.7% each. The German DAX reflected some of the pressure from weak autos, dipping 0.1%, while the rest of the continent saw modest gains, with the Stoxx Europe 600 index up 0.2%.
The FTSE 100 index
UK:UKX
was up 0.3%, with mining shares getting a lift as China’s August Caixin manufacturing PMI beat forecasts with a rise to 51, which indicates improving conditions, as the country also lowered down-payment requirements on homes. China-sensitive miners such as Rio Tinto PLC
RIO,
RIO,
and Anglo American rose 1.2% and 0.9% each.
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