In the attached publication we detail our fundamental credit view for EUR Autos.
EUR Autos Recommendation: Underweight
- Mixed 2Q24 updates which call for a quick 2H24 turnaround combined with an unclear macro picture for Europe and China to YE24 makes us prefer more defensive sectors given relatively tight spreads for EUR Autos.
- Further spread movement will be increasingly macro driven, but cyclical exposure for names is more nuanced than a first look would suggest (depends on (i) regional exposure, (ii) EV vs. ICE production, (iii) premium vs. volume production, (iv) pricing power)
Top Picks/Pans:
- We hold a positive view on BMW given macro defense from premium focus & low beta regional exposure, combined with EV leadership in premium segment (front-loaded capex during years with more supportive investor demand)
- We hold a positive view on STLA given consistent and strong fundamentals vs. peers and regional defensiveness against cyclicality (higher US & Europe exposure), despite large EV exposure (high beta) and 1H24 operational challenges
- We hold a negative view on VW due to weaker comps vs. peers, insufficient progress on core brand margin improvements, large exposure to China and significant ST refinancing needs, although model and regional diversification offers some cyclical protection
- We hold a negative view on MBGGR as credit positives are already priced in and slower EV ramp-up implies higher capex & refinancing needs in a less supportive macro environment
Relative Trade Ideas:
- Buy BMW 3 3/8 2034: trades +3bps above its own curve and +21bps wider to MBGGR’s 0 ¾ ‘33
- Buy BMW 3 5/8 2035: trades +19bps wider vs. mid-July tights and +17bps wider than MBGGR’s curve
- Buy BMW 3 ½ 2032: trades +15bps to MBGGR’s 1 1/8 ‘31 and +10bps from mid-July lows
- Buy STLA 4 ¼ 2031: trades +15bps above its own curve & 18bps above VW’s curve
- Buy STLA 2 ¾ 2032: widened +25bps since mid-July and trades +6bps to VW’s 1 ¼ ‘32
- Buy STLA 1 ¼ 2033: widened +29bps since mid-July and trades +15bps wide to VW’s 3.3 ‘33]
- M/P VW Hybrids: VW’s hybrids look particularly tight in the 3Y part of the curve where VW trades 88bps above Iberdrola’s curve