Tough times are not over for European autos - Citi
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TOUGH TIMES ARE NOT OVER FOR EUROPEAN AUTOS - CITI
Following a strong November-March rally, European autos .SXAP have given up all their year-to-date gains in the second quarter as weak earnings, China tariff concerns and the scaling back of rate cut bets have reduced appetite for the sector.
Citi analyst Harald Hendrikse said Q2 results may not be as poor as those seen in Q1, as lower materials costs and easing supply chain snags will likely offset higher labour costs.
Yet, he believes auto makers will have to signal further improvement in the second half of the year if they want to meet their 2024 guidances. And for now, he sees no obvious catalyst that could drive such an improvement.
"Until FY24 guides are seen as 'reasonable', investors will likely wait to increase any exposure, despite low valuations. In other words, OEMs (original equipment manufacturers) would be well-advised to get bad news out of the way", he said in a note.
Hendrikse said competition with China continues to be a threat to European manufacturers, especially for Germany's Porsche P911_p.DE, BMW BMWG.DE and Mercedes-Benz MBGn.DE.
On top of that, he expects French political uncertainty will keep investors away from increasing their exposure to Europe.
"Whilst an end to election uncertainty may see a European short-squeeze, potentially led by Autos, this is not the same as a new bull cycle," he said. "Lower rates, to the degree the ECB lowers rates further, we think would only be a positive if accompanied by sustained economic strength".
(Matteo Allievi)
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