(News Bulletin 247) – The Stifel bank has lowered its advice on the two major French automotive equipment manufacturers, going from “buy” to “hold”. Visibility still remains low on these two actions.

Automotive equipment manufacturers constitute one of the most battered segments on the stock market in recent years. Geopolitical tensions, soaring interest rates, the pandemic, the “stop and go” of production by auto manufacturers, or the inflation of raw materials and wages are all clouds that have darkened their horizon.

The fear that electrification will eat into their margins is another. Recently, the general manager of the car manufacturer Stellantis, Carlos Tavares, warned that the development of electric engines would cause “significant pressure” on equipment manufacturers.

The end of the tunnel therefore still seems far away. This is also what Stifel suggests in a note devoted to Valeo and Forvia and entitled “It is likely that it will get worse before it gets better”. The bank lowered its rating on both stocks from “buy” to “hold.” It also slashed its price targets, to 11.3 euros compared to 22 euros previously on Valeo, and to 12 euros compared to 24 euros previously on Forvia.

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Electrification and Chinese competition

After opening sharply lower, the two stocks resisted, gaining 0.6% (Valeo) and 1% (Forvia) at the start of the afternoon, in a buoyant market, the SBF 120 gaining 0.8% at the same time .

Stifel emphasizes that the latest projections from S&P Global Mobility, a reference firm in the sector, do not bode well. S&P Global Mobility estimated that global automobile production of light vehicles (in short, personal vehicles) would fall by 1.1% this year before recovering 3% in 2025.

“However, the ground lost in 2024 will not be recovered and global production will have lost 1.3 million units over two years,” writes Stifel.

The bank sees revenue risks for both groups due to a slowdown in electric vehicle adoption. General Motors, for example, cut its electric automobile production schedule by 25% this year. Increases in customs duties implemented by certain regions such as Turkey, the European Union and the United States could further affect demand.

“The EV outlook could remain ‘slower for longer’ given battery project cancellations (Ford, GM, Stellantis, SVolt) while some platforms are simply abandoned (Mercedes),” Stifel writes.

Electrification is not the only risk pointed out by the establishment. Stifel fears that Valeo and Forvia will find themselves increasingly competing with their Chinese rivals. The bank writes that Chinese equipment manufacturers have advantages in terms of costs and technologies compared to Western ones, and fears that the “traditional” manufacturers of Western equipment manufacturers will broaden their supplier panels (to Chinese groups therefore) to further reduce costs. Which would obviously weigh on the activity of equipment manufacturers.

In addition, Stifel wonders whether the Chinese manufacturers currently penetrating the European market will rely on local equipment manufacturers or whether they will serve as a “Trojan horse” for equipment manufacturers from the Middle Kingdom.

Little room to bounce

Last point: both Forvia and Valeo have announced plans in recent months to reduce their industrial footprints and adapt to structurally sluggish volumes in Europe.

“While welcoming the expected improvement in costs, we recognize that investors have priced in additional cash outflows (aggravating the expected increase in interest payments), which is likely to slow their respective deleveraging rates,” explains Stifel .

Ultimately, all these elements (which are added to the tumults linked to the French elections) could lead to lowering prospects, fears Stifel. This should prevent Valeo and Forvia shares from rebounding despite their respective drops of 28% and 41% since January 1.