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UBS anticipates continued robust financial performance in the upcoming quarters with the potential for additional positive surprises. However, it is noteworthy that most indicators have ceased to show improvement. An analysis by UBS, including the examination of the BYD (SZ:002594) teardown Q-Series, leads UBS analysts to believe that legacy automakers face the highest risk of experiencing substantial market share declines due to the increasing competition from Chinese OEMs and Tesla (NASDAQ:TSLA).
UBS analysts believe that Germany’s Volkswagen (ETR:VOWG_p), as the former #1 OEM in China, is the most negatively exposed to the rise of Chinese carmakers. As the #1 OEM in Europe, it is also likely to be most impacted longer term by highly competitive Chinese EVs.
UBS also downgraded VW to a Sell rating (From Neutral) and cut their 12-month price target on the stock to €100.00 (From €135.00).
The analysts wrote in a note, “Recent management changes and strategic action address the obvious challenges, but it we believe it unlikely VW can weather the upcoming Chinese advance without negative earnings impact.”
Even as management’s tone remains highly confident, they believe that Renault’s profitability peak is nearing. And as BYD and Tesla aim to increase their European sales by a combined 2.5m units by 2030, it is likely that VW will be negatively impacted.
One bullish argument is that Volkswagen enters a strong phase of its ICE product cycle, particularly within the premium/luxury segment (Audi, Porsche), as well as with some high-selling models from its volume brands like the VW Tiguan and Skoda Octavia.
The analysts factored this into UBS projections for 2024, which helps mitigate the impact of a potential steeper price/mix decline. However, they don’t consider it to completely counterbalance the cyclical headwinds.
