(News Bulletin 247) – The American bank estimates that sales of electric vehicles should continue to grow strongly next year, while more overall volumes should experience weak growth. The establishment recommends five stocks, two of which are listed on the Paris Stock Exchange.

What does 2024 have in store for the automotive sector on the stock market? In an in-depth study released last week, Bank of America attempted to answer this question.

The American bank sees a decline in volumes next year. After a 9% increase in sales of light vehicles (excluding utility vehicles) in 2023, it anticipates growth of 1.7% in 2024, with stronger growth in North America (+4%) than in Europe ( 0%), due in particular to a more favorable macroeconomic context.

“Order books will probably have been returned to normal levels by the end of 2023,” she also considers. Other important points to watch: the launch cycle of new models, which should accelerate in 2024, with a busy year for BMW and Renault, while in 2025 it will be the turn of Stellantis and Volkswagen, explains the bank.

“Good model launches can help gain market share and keep prices high,” she emphasizes. In terms of profitability, the bank forecasts a decline of 70 basis points (0.7%) in the operating margin, on average, for all European manufacturers, with lower prices partly offset by lower costs. .

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Strong growth in electricity

Regarding sales of electric vehicles, Bank of America expects growth of 27% in 2024, or 2.7 million additional units. For Europe, it anticipates an increase of 23% next year, which represents 470,000 more vehicles.

Electric vehicles would represent 19% of total sales, less than the 20% expected by the European Manufacturers’ Association. Bank of America warns that European sales risk “disappointing” in the electric sector. At the manufacturer level, Stellantis would experience the strongest growth in its electric sales (+68% worldwide), thanks in particular to the electric 3008, which should be available at the start of the year, or the Citroën C3 electric. Next, according to the bank’s projections, are Renault (+57%), which will notably launch the electric R5 next year in 2024, then Volkswagen (+47%).

For equipment suppliers and tire manufacturers, Bank of America expects a complicated year in terms of volumes, with stable global automobile production (-0.2%).

However, the bank is more optimistic on margins, anticipating an average improvement of 110 basis points, with costs of raw materials, logistics and energy which should fall and therefore constitute a favorable wind, this for the first time times since 2020. More stable production schedules (with the end of “stop and go”) should also help equipment manufacturers, judges Bank of America.

Now that the framework is set, what values ​​can stand out in this mixed environment, according to Bank of America? The establishment cites five.

Volkswagen and Stellantis among manufacturers

On the manufacturer side, the establishment cites two groups: Stellantis and Volkswagen.

For the group resulting from the merger between PSA and Fiat Chrysler, Bank of America judges that the company has levers to offset the negative impacts due to an environment of lower prices and a less favorable sales mix.

The Franco-Italian-American company is preparing to launch several vehicles which should bring the contribution of new models to 11% of total volumes in 2024, after 7.8% in 2023, and before reaching 17% in 2025 , according to the American bank. In addition to the electric Peugeot 3008, the group will launch a new generation of Dodge Charge, the Ram 1500 REEV, as well as 12 utility vehicles.

Another asset up Stellantis’s sleeve: its work on costs, the group being known for its iron discipline in this area. Bank of America expects a positive impact of 1.5 billion euros linked to the increase in synergies from the PSA-Fiat Chrysler merger. This will be made possible thanks to the rise in power of the “STLA Medium” platform (a common structure for the bottom of vehicles from several brands), and further cost reductions on supplies. “We believe that the consensus underestimates the potential for positive surprises due to (the improvement of) the cost base and the synergies of Stellantis,” argues the research firm.

Furthermore, Bank of America appreciates the group’s low exposure to China, and its “limited” exposure to financial services, two complicated markets, according to it (pressure on prices in China, financial services market in a correction phase). In addition, the valuation of Stellantis turns out to be “undemanding”, estimates the bank which expects a current operating margin of 13.2% for the company in 2024 after 13.7% in 2023, which turns out to be very clearly above the consensus (11.6% in 2024).

For Volkswagen, Bank of America recognizes that the German group should experience a year of transition in 2024, with a drop in volumes of 3.7% and market losses in China. But the establishment calls for looking further ahead with attractive medium-term objectives from the German group, namely average annual growth of 5% to 7% between 2022 and 2027, and an operating margin of between 8% and 10% in 2027. However, the group does not currently receive any credit from the market for these objectives, points out the establishment, even though its opportunities “are significant”.

Furthermore, the establishment expects that the German group will launch a savings plan next month for the Volkswagen brand, while the company plans to reduce the costs of this same brand by 10 billion euros by to 2026. “We believe that it is easy to reduce costs at Volkswagen Germany and that the consensus does not give the company the benefit of the doubt at this time,” supports Bank of America. Which should carry the accounts of the German group. “Volkswagen is one of the few automakers in Europe whose profits are expected to increase, not decrease, over the next two or three years,” Bank of America anticipates.

Forvia has potential

As for equipment manufacturers, Bank of America prefers Forvia, the new name of the French Faurecia since it bought the German Hella. The establishment expects the company to benefit from the extraction of cost synergies linked to the merger with Hella, the absence of a repeat of the production problems that the group experienced at its Michigan site as well as lower raw material costs. In addition, the bank appreciates the company’s exposure to winning electric players, such as Tesla and China’s BYD.

Bank of America also chose the German Continental and went from “neutral” to “buy” on the stock after its day dedicated to investors on December 4.

The German equipment manufacturer is implementing restructuring measures which should improve its adjusted automotive operating margin, increasing it from 2% to more than 6% in 2026, Bank of America anticipates. This trajectory of restoring profitability is underestimated by the market, according to the American bank.

The latter also expects Continental to successfully complete asset disposals in the next two-three years, including the sale of its automotive unit within its ContiTech advanced products division. This operation could add up to 35 euros in value per share (which is currently trading at 76 euros), according to Bank of America.

Last action that could stand out according to the bank: the Italian tire manufacturer Pirelli. “Current dynamics in the tire market lead us to believe that Pirelli is best positioned among tire manufacturers to increase its profits in 2024,” judges Bank of America.

The establishment believes that the transalpine group demonstrated in 2023 “first-class pricing power and greater volume resilience in higher value segments”. The bank expects its operating profit to increase by 9% in 2024, bringing the corresponding margin to 16.1% after 15.3% in 2023.