Europe's auto stocks hit record high as traders bet on strong 2022

ElringKlinger AG

05/01/2022 16:10

* European auto and auto parts index hits record high
    * Sector has gained 33% in one year
    * BofA expects light vehicles sales to increase by 10% 
    * Europe auto sector trades at 7x forward earnings, U.S. 42x

    By Joice Alves
    LONDON, Jan 5 (Reuters) - European automobile stocks rose
more than 2% to a record high on Wednesday as investors turned
increasingly bullish on the sector on growing expectations for
stronger car sales in 2022. 
    Investors' interest in car stocks across the region has
ignited over the past few months with Europe's auto and auto
parts index  .SXAP  up more than 8% this week alone, surpassing
a previous record high in November. 
    The sector has gained 33% in a year, outperforming the
pan-European index  .STOXX , which has gained 23% over the same
period. 
 
    After carmakers had to deal with high inventories over the
past two years caused by a pandemic-induced slowdown in sales,
things have started to turn around for the sector despite a 2021
 shortage in chip supply, which forced some to cut production.
    Shares in Germany's BMW  BMWG.DE  rose 2.3% after the group
said it achieved record sales of over 2.2 million vehicles from
its BMW brand in 2021, outstripping 2019 levels.  urn:newsml:reuters.com:*:nL1N2TK1GZ 
    BofA expects European light vehicle production and sales to
increase by 10% this year, with Daimler's  DAIGn.DE 
Mercedes-Benz, Renault  RENA.PA  and Stellantis  STLA.MI 
leading the pack with projected growth rates at around 20%. 
    "We argue there is still substantial catch-up potential left
and we remain positive on light vehicle sales growth in FY22,"
said Horst Schneider, research analyst at BofA. 
    
    ROOM FOR GROWTH 
    Higher car prices in 2021 offset an increase in costs in the
second half of the year, analysts said. Yet European car stocks
are still much cheap compared to U.S. peers. 
    Europe's auto sector is trading at just seven times forward
earnings. That compares to 16.8 times for the STOXX 600
benchmark and a whopping 42.4 times for the U.S. auto sector
 .SPLRCAU . U.S. carmaker Tesla's  TSLA.O  market capitalization
alone is more than twice the size of the entire STOXX 600 index.
    "Autos are very cheap, but profitability is strong given
excellent price mix, even on lower volumes, and chip shortages
should ease," said Emmanuel Cau, equity strategist at Barclays. 
    Shares in Renault climbed 4.4% as U.S. chipmaker Qualcomm
 QCOM.O  said it had struck deals to supply the French carmaker
and Volvo Cars  VOLCARb.ST . urn:newsml:reuters.com:*:nL8N2TL1E7
    Stellantis shares rose 3.4% as the Milan-listed company
partnered with Amazon.com  AMZN.O  to develop cars and trucks
with Amazon software in the dashboards and deploy electric vans
on the online retail giant's delivery network.  urn:newsml:reuters.com:*:nL4N2TL2L1
    Daimler's shares also rose 3% despite reports the company
informed owners of its luxury cars of a technical defect that
could spark a fire.  urn:newsml:reuters.com:*:nL8N2TK3ML
    Not everyone is bullish, JP Morgan cut its production growth
forecast for European light vehicles to 4% and 6% for 2022 and
2023 respectively, citing consumers' hesitancy towards buying
internal combustion engines, postponing purchases of electric
vehicles and the chips shortage.  urn:newsml:reuters.com:*:nL8N2TL1BZ
    But with demand still outstripping supply amid ongoing
shortages of raw materials, the auto and auto parts space is
poised for growth, according to Barclays.

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Auto sector versus STOXX    https://tmsnrt.rs/3pSF15s
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 (Reporting by Joice Alves
Editing by Mark Potter)
 ((Joice.Alves@thomsonreuters.com; @joiceal))