LIVE MARKETS-BofA sees regulatory U-turn putting European autos back in the driver's seat

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BOFA SEES REGULATORY U-TURN PUTTING EUROPEAN AUTOS BACK IN THE DRIVER'S SEAT

Analysts at BofA Global Research see clearer skies for European automakers next year and say that an expected reduction in regulatory pressures, especially around carbon dioxide emissions, for car makers makes the sector a favorable investment choice for 2026.

The brokerage said Europe's likely delay of its internal combustion engine (ICE) ban beyond 2040, could reduce 2035 decarbonization targets by 50%, ceasing pressure on automakers.

U.S. President Donald Trump on Wednesday, proposed to slash fuel economy standards nL1N3X90V0 that former President Joe Biden had finalized last year, in a push to make it easier for automakers to sell gasoline-powered cars.

This reduces near-term execution risk for legacy manufacturers priced for disruptive scenarios under strict CO2 rules, while extending the profitability window for ICE platforms and improving cash flow visibility, BofA analysts said.

According to the broker, the shift benefits the entire sector from mass-market players like Renault RENA.PA to luxury brands such as Ferrari RACE.MI by improving discounted cash flow outlooks, but the cheapest stocks are potentially the biggest beneficiaries.

Under this view, BofA selected its top picks from industries related to autos - tire maker Continental CONG.DE, supplier Aumovio AMV0n.DE and original equipment manufacturer (OEM), Ferrari RACE.MI.

Ferrari has strong visibility on its orders, says BofA although it added that it expects a slow start into 2026 with a strong finish towards end of the year and that it doesn't see 2030 targets raised before 2027.

Continental has a high risk/reward ratio and Aumovio is the cheapest auto supplier in Europe, alongside both being less dependent on regulation and not very exposed to structural challenges, per the brokerage.

It also upgraded its rating on Porsche , Mercedes-Benz MBGn.DE and Renault RENA.PA, citing a variety of tailwinds such as cheaper valuations and profit growth prospects in addition to the relaxed regulatory environment.

European carmakers have been urging nL8N3WX150 Brussels to ease the 2035 emissions ban proposing allowances for CO2-neutral fuels and plug-in hybrids, as they contend with fierce price wars, slowing demand in China, and intensifying competition from Chinese manufacturers.

(Anastasiia Kozlova, Purvi Agarwal)

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