Auto File: Europe’s stock price problem and circling the US wagons
AUTO FILE-Europe’s stock price problem and circling the US wagons By Nick Carey
Nov 3 (Reuters) -
Greetings from London!
By this time tomorrow we should have a pretty good idea of the outcome of the US midterms, though various likely legal challenges could leave the final results in limbo for some time.
Even if Democrats win complete control of the US Congress, it is hard to see what impact they’d be able to have on President Donald Trump’s tariff policies, let alone challenge his rollback of EV friendly policies.
But if a Democrat wins the White House in 2028, then the auto industry will likely get whiplash again. Beyond keeping Chinese cars off US roads there is no consensus in Washington on what is best for US car companies (more on this below).
Speaking of the Chinese, in our main topic for today’s newsletter we’ll focus on Europe’s carmakers and their languishing share prices, which some executives blame on a lack of action by the European Union to protect the continent’s auto industry.
Which brings us to today’s Auto File…
European car stocks in reverse
Chinese out, high emissions in
Volkswagen stops work on electric Golf
* Zombie car stocks
For some time now, no matter what Europe’s carmakers do, their share prices have remained at rock bottom levels.
My Reuters colleagues Rachel More and Giulio Piovaccari have put together a good story on this. You can read all about it here.
Take Renault, for instance. The smallest of the major legacy automakers has arguably demonstrated an ability to adapt and survive in the new era of fast-moving Chinese rivals.
The French carmaker has embraced Chinese technology to speed up the development of new EVs, and electric models like the Renault 5 sell well.
But its market cap sits at around $9.2 billion, less than the combined value of its factories and other assets.
Indeed, the combined valuations of Renault, Stellantis and Volkswagen ($62 billion) fall well short of Ferrari’s $71 billion market cap. VW is the world’s No. 2 automaker by sales and Stellantis clocks in at No. 4.
Stellantis shares did get a nice little bump from earnings last week after bullish comments about exceeding cost-savings targets.
But the shares are still down over 56% year to date and are over 84% below a peak hit in March 2024.
* Where is the floor?
A big part of the problem is legacy automakers have seen their sales plummet in China as local automakers have taken market share and now Chinese carmakers are gaining ground almost everywhere else.
"The Chinese are taking too much share at home and abroad to give investors visibility on where the floor is," says Jefferies analyst Philippe Houchois.
"The result is an industry that becomes a bit of a zombie industry,” he added.
Renault CEO Francois Provost is quite frank about the problem.
During a luncheon with journalists in central London the other week, I asked Provost why nothing the French automaker has done has moved the needle with investors.
If you put a similar question to some auto CEOs, you’d get corporate speak in return – I can think of a few CEOs in particular who’d talk around that one.
But with refreshing directness, Provost said he believes that “the share price of the automotive industry reflects the anticipation of (the EU) not moving,” to protect local automakers from cheaper Chinese rivals. This, he argues, will “kill the automotive industry in Europe.”
Provost says that unless the EU forces a grand bargain on China to stop Chinese car imports into Europe and just leaves things as they are, then shortly after 2030 European car production will fall to half its historical average.
“Do you think any industry can survive this?” Provost asked.
Renault’s CEO says that if Chinese automakers import their cars into Europe, they have 30% to 40% lower costs than Europe’s automakers, which he cannot match.
But if the EU forces Chinese automakers to produce cars in Europe for sale in Europe, he can compete.
If the EU takes action, Provost says investors will evaluate European automakers individually and that would be reflected in their share price.
Recommended reading:
A US-Canada trade deal?
Volkswagen’s journey
Debate over US tariffs on Vietnam
* Less Chinese, more emissions
The US auto industry has been lobbying hard for Congress to pass a permanent ban on Chinese automakers and they were back at it this week, calling for lawmakers to act as soon as possible after the midterm elections.
You can read all about it here.
A ban looks set to pass with rare virtually unanimous support in Washington. When the US Senate punted on a vote in September, backers said it had the support of 99 senators and it was just a matter of time before a lone holdout came around.
While arguing that they need to be protected from “a flood of Chinese imports that carry surveillance risk”, automakers are also backing the Trump administration in a legal challenge to new, sharply lower vehicle fuel economy standards filed by California and other states.
You can read about that here.
Lobby group the Alliance for Automotive Innovation argues that automakers “require certainty and stability” in fuel standards, even though it is the Trump administration proposing new lower standards instead of sticking with previously agreed ones.
These two moves make perfect sense for US automakers’ sales today. Keeping the Chinese out protects the market. Lowering fuel economy standards means not having to spend tons of money on new technology.
But how does putting up a fence around the market help US automakers compete elsewhere?
According to a note from Jefferies last week, year to date Chinese automakers had a 90% share of EVs sold in Latin America. How does lowering fuel standards help US automakers outside that market?
* VW halts Golf work
Speaking of curious decisions, in a memo seen by Reuters colleagues Christina Amman and Rachel More, cash-strapped Volkswagen VOWG.DE has suspended work on the new electric Golf.
You can read all about that here.
The Golf is supposed to be a future flagship model for VW. It is supposed to be one of the first vehicles planned for the German automaker’s next-generation SSP software architecture, a group-wide platform designed to reduce complexity and lower production costs.
Already delayed from an original 2026 launch, the platform is central to VW’s efforts to build more competitive EVs as Chinese rivals expand in Europe.
"We simply can't afford this work right now," Thomas Schaefer, CEO of the German group's volume brands, said in the memo.
VW is cutting jobs and looking to close plants. But halting work on a core future model is a worrying sign of how much work VW has to do to fix its problems.
* Fast Laps
Stellantis STLAM.MI said a shortage of an electronic component used in an engine control unit is causing "significant" disruption to production of some Fiat models in Italy, and could continue through November and December.
Strikes have gathered pace across Germany's metal and electrical engineering industry, with workers at companies including Audi, Mercedes-Benz MBGn.DE and Tata Steel TISC.NS downing tools as the IG Metall union stepped up pressure in a pay dispute affecting 3.7 million employees.
Volkswagen will bring China-developed technologies to overseas markets including South America and South Africa, as the German automaker seeks to bolster its global competitiveness by using China as an innovation hub.
Mercedes-Benz is preparing a broader strategy update for 2030 and beyond with China as a central pillar for its long-term plans, CEO Ola Källenius said, even as the carmaker works to reduce its reliance on the market.
Chinese EV maker BYD 1211.HK posted a sixth straight month of sales growth in October, relying on overseas markets to counter sluggish demand at home.
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