(News Bulletin 247) – The Swiss bank published a sector note on Tuesday painting a gloomy picture for the sector. UBS lowered its advice to “neutral” against “buy” on Valeo and Forvia which are declining on the Paris Stock Exchange.

What to expect in 2025 for the European automotive sector on the stock market after a (very) difficult end to 2024?

Not much according to UBS. The Swiss bank published a sectoral note this Tuesday in which it wrote that European automobile groups are facing “an almost perfect storm”.

“The pressure on prices, the loss of market share in China, the tightening of regulations on Co2 emissions, the risk of customs tariffs (from the Trump administration, Editor’s note) and the persistence of sluggish demand ( 2025 production excluding Chinese manufacturers is estimated -1% year-on-year) should further reduce sector profits, despite the intensification of restructuring efforts,” explains the bank.

“Valuations are around 30% below the historical average and investor positioning is cautious, but we think it is premature to say that price is everything,” she adds.

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Equipment manufacturers to “avoid”

However, the establishment reiterated its advice to purchase Stellantis, encouraged by its recent efforts to reduce its stocks in the United States. The bank also maintains its “neutral” recommendation on Renault. If the diamond group has demonstrated excellent execution in 2024, UBS fears pressure on the prices of its vehicles, fears that the 2025 targets of its Ampere division will not be met and fears that the company will not sell enough of electric vehicles to meet its Co2 emissions targets.

This time regarding automotive suppliers, UBS recommends “avoid most”. “The absence of volume growth, the lack of visibility on the production schedules of equipment manufacturers and the strong pressure exerted on costs risk cementing profit margins at the current low levels,” underlines the bank.

As a result, the bank lowered its advice on the two major equipment manufacturers in Paris, namely Forvia and Valeo, going from “buy” to “neutral” on both values. Which weighs on the two titles this Tuesday. Valeo shares fell 2.2% and Forvia shares fell 4.4% around 3 p.m. on the Paris Stock Exchange.

Limited room for maneuver

For Valeo, UBS expects an operating margin to increase slightly in 2025 to 4.4% in 2025 compared to 4.2% expected in 2024. But the bank believes that the market has not sufficiently taken into account certain risks, in particular the volatility in the production schedules of its customers, the automobile manufacturers. This volatility could be caused by several uncertainties, such as the impact of customs tariffs desired by the elected American president, Donald Trump, the 2025 European regulation on Co2 emissions, strikes at Volkswagen or even restructuring measures among manufacturers.

On a more positive note, UBS judges that the group has a “healthy” financial balance sheet and its cash generation, although weak, should improve in 2025. The Swiss bank therefore judges that the risk of an increase in capital, a measure feared by the market, turns out to be “limited” over the next six to 18 months.

Regarding Forvia, UBS highlights the same risks as for Valeo on manufacturers’ production schedules. The former PSA subsidiary is a little more exposed than other equipment manufacturers to potential restructuring measures by manufacturers due to its high industrial footprint in Europe and its exposure to Volkswagen on the Old Continent (between 10% to 15% of its sales, according to UBS).

Furthermore, even if the group does not have significant debt maturities before 2026, UBS writes that its financial balance sheet leaves little room for maneuver in the event of unforeseen events.

“An announcement concerning the last planned asset sales (750 million euros remaining) is now more urgent (the sale proceeds are not expected before the second half of 2025),” warns UBS.

Note that Forvia also announced this Tuesday that the German Martin Fischer would succeed Patrick Koller as general manager as of March 1, 2025.