LIVE MARKETS-European autos: good news coming into sight

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EUROPEAN AUTOS: GOOD NEWS COMING INTO SIGHT

The spectre of Trump imposing new tariffs has been one of the many drags for the embattled European auto sector, which is already suffering from a slowdown in demand for electric cars and intense competition from cheaper Chinese models.

Yet, share prices and record-low valuations have recovered from last year's troughs, which suggests we are past the worst - and some good news finally seems to be just around the corner.

On Wednesday next week, the EU will present an action plan for industry, and Citi views it as "highly likely" that current legislation will be modified and 2025 emissions penalties will be deferred.

"This could provide a further catalyst for sector performance – likely led by Renault and Volkswagen, seen to be most at risk," writes Citi analyst Harald Hendrikse.

Alberto Conca, CIO at ZEST+LFG, also expects Brussels to ease emissions rules and eventually reconsider a 2035 ban on the sale of petrol and diesel models, something he says could boost margins.

"The lifting of the 2035 sword of Damocles will certainly be a huge help to the industry," said Conca, who is exposed to the European autos, with holdings such as Porsche P911_p.DE.

"Carmakers have been passing on the costs of EV research and development to consumers through higher prices for traditional vehicles. Now, as sales of conventional cars are likely to increase, their profit margins will probably benefit as a result."

"Looking at the severely depressed valuations of stocks like BMW and Stellantis, it appears that these companies are facing an existential crisis. However, honestly, I believe the truth lies somewhere in between," he also said.

European autos .SXAP are up 11% this year. It now trades at a 47% valuation discount to the STOXX 600 .STOXX, up from a record 60% gap hit last year.

(Danilo Masoni)

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