German Share Gains In Europe: Unprecedented...And Until The Euro Or China Cracks...Unstoppable?

Transcription

1 June 21, 212 Global Autos German Share Gains In Europe: Unprecedented...And Until The Euro Or China Cracks...Unstoppable? (A Capital Markets View Of The European Auto Industry) Max Warburton Global Automotive Equity Analyst Prudential Tower 5 Berkeley St No. 3 Cecil Street London Singapore W1B 8SB, UK See Disclosure Appendix of this report for important Disclosures and Analyst Certifications

2 The Decline And Fall Of European Profitability European OEM EBIT margins have been in structural decline for two decades European Volume OEMs Average EBIT Margin EBIT Margin (%) 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% -1.% -2.% Source: IHS Global Insight and Bernstein analysis 2 Global European Autos Autos

3 Is Anybody Making Money In European Autos? German OEMs have seen a margin step up, while almost everyone else is in decline if we isolate core Western Europe, mass market Europeans set to lose over E2bn in vs. 211 Auto EBIT Margins 15% 11.8% 12.1% 1% 6.4% 9.1% 9.% 8.% EBIT Margin (%) 5% % 4.% 2.6% 2.% 1.8% 1.2% -.2% 3.% 2.8% 2.% -.1% 3.5%.9% 4.% 1.4% -5% -2.8% -1% BMW Mercedes Audi VW brand Renault PSA Fiat Ford Europe GM Europe Toyota Europe¹ % Nissan Europe¹ Source: Corporate Reports and Bernstein analysis 1. FY 212 for Japanese OEMs 3 Global European Autos Autos

4 Unstoppable German Market Share Gains since The uro We are all talking German now onwards and upwards, German OEMs have gained market share since 2...the point where the Euro was introduced 2 vs. 211 German OEM Market Share in Western Europe 32.% 31.3% Market Share (%) 3.% 28.% 26.% 24.% 25.9% 26.3% 26.% 25.7% 25.7% 26.9% 28.% 27.9% 29.1% 28.4% 29.2% 22.% 2.% Source: IHS Global Insight and Bernstein analysis 1. Includes Volkswagen, Audi, SEAT and Skoda 4 Global European Autos Autos

5 Is This Unprecedented? In Europe Yes; Globally No. Several of the automotive success stories of the past few decades US Market Share of Japanese OEMs US Market Share of Korean OEMs UK Market Share of French and German OEMs % 3.% 1.% 9.% 8.% 7.% 25.% 2.% Market Share (%) 25.% 2.% Market Share (%) 6.% 5.% 4.% Market Share (%) 15.% 1.% 3.% 15.% 2.% 5.% 1.% 1.%.% % German Mkt Share French Mkt Share Source: IHS Global Insight and Bernstein analysis 5 Global European Autos Autos

6 Currency Explains A Lot Of It can be partially explained by favourable foreign exchange rates US Market Share of Japanese OEMs US Market Share of Korean OEMs UK Market Share of French and German OEMs % 16 1.% % 14 Market Share (%) 3.% 25.% 2.% 15.% USD/JPY Market Share (%) 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.% USD/KRW Market Share (%) 2.% 15.% 1.% 5.% %.% Exchange Rates Rebased to 1 as of Jan 1, 199.% Market Share USD/JPY Market Share USD/KRW German Mkt Share GBP/DEM French Mkt Share GBP/FRF Source: IHS Global Insight and Bernstein analysis 6 Global European Autos Autos

7 When Did Germans Focus On Europe? VW used to rely on the US for its profitability...this was wiped out in 23 by US$ devaluation...almost immediately after, VW turned its attention to growth WITHIN Europe VW Operating Profit in North America VW Market Share in Europe Operating Profit (EUR mn) ,664 1, EUR/USD Market Share % 24.% 23.% 22.% 21.% 2.% 19.% 18.% 17.% 16.% 18.9% 18.4% 18.2% 18.1% 18.9% 2.9% 21.% 2.4% 19.8% 19.5% 22.9% % Source: ACEA, Bloomberg, IHS Global Insight and Bernstein analysis 7 Global European Autos Autos

8 Do German Gains In Europe Look Like A Currency War? Adjusted for cost competitiveness, Germany s real effective exchange rate has depreciated almost 2% relative to the Eurozone since 1999 Currency specialists argue Germany s exchange rate without the Euro would be closer to $2 (e.g. Euro/US$ equivalent) Germany and Eurozone Real Effective Exchange Rate = Eurozone Germany Source: Eurostat and Bernstein analysis 8 Global European Autos Autos

9 Should a Creditor Nation Have A Natural Brake? Since 22 creditor countries (China & Japan) have seen their currencies appreciate 46.% while debtor countries (US and UK) have seen their currencies depreciate 26.5%...meanwhile Germany, the biggest creditor country of all, has seen...no CHANGE versus its biggest trading partners (other European peers) Current Account Balance Current Account Balance (USD bn) China Japan Germany UK US Currency Movement % +68.3% % -28.5% -24.5% 2 USD/ RMB USD/ JPY EUR/USD 1 USD/EUR 1 GBP/EUR Source: IMF, Bloomberg and Bernstein analysis 9 Global European Autos Autos

10 Previous Crises Saw Competitive Devaluations French & Italian OEMs benefitted from weaker domestic currencies in the early to mid-199s French OEMs Market Share in Western Europe Italian OEMs Market Share in Western Europe 24.5% % % %.14 Makret Share (%) 23.5% 23.% 22.5% 22.% DEM/FRF Makret Share (%) 9.5% 9.% 8.5% 8.% 7.5% 7.% DEM/ITL 21.5% %.2 21.% % French OEM Market Share DEM/FRF Italian OEM Market Share DEM/ITL Source: IHS Global Insight, Bloomberg and Bernstein analysis 1 Global European Autos Autos

11 Devaluation = Automotive Success Q: What European country saw the biggest % increase in auto production in 211? A: The UK...in Q1 212 the UK recorded a trade surplus in cars its first since 1976 UK Trade Balance in Cars Trade Balance (GBP mn) GBP/EUR -1 Jan- May- Sep- Jan-1 May-1 Sep-1 Jan-2 May-2 Sep-2 Jan-3 May-3 Sep-3 Jan-4 May-4 Sep-4 Jan-5 May-5 Sep-5 Jan-6 May-6 Sep-6 Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan UK Trade Balance in Cars GBP/EUR Source: UK ONS and Bernstein analysis 11 Global European Autos Autos

12 What Can Be Done Absent A Currency Break? In 2, Germany s unit labour cost was highest among European countries...since then it has become far more competitive Unit Labour Cost Among European Countries Rebased: 2 = E 213E Eurozone Germany Spain France Italy UK Source: Eurostat and Bernstein analysis and 213 are Eurostat estimates 12 Global European Autos Autos

13 VW How Is It Taking So Much Share In Europe? VW products may be more attractive, the brand better managed, the quality stronger and the technology superior but the most important weapon has been price Source: Volkswagen 13 Global Autos European Autos

14 VW Chinese Profits Subsidising European Strategy VW reports pro-forma EBIT for its Chinese JVs...this continues to show incredible momentum...but VW also makes money from numerous other Chinese sources VW Group: China Proportionate Operating Profit (Q1:2-Q1:12) Q1 Q2 Q3 Q4 Q1 EURmn Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Source: Company reports and Bernstein analysis 14 Global European Autos Autos

15 VW Just How Much Is It Making In China?...Parts Sales Parts and component revenue makes a very substantial contribution to VW brand profit and cash flow, subsidising European operations VW Group: Parts/Components Revenue From Chinese JVs (21-21) VW Group: Parts/Components EBIT From Chinese JVs (21-21) 8, 7,368 1,6 1,474 7, 1,4 6, 1,2 5, 4,838 1, 968 EURmn 4, 3, 2,896 2,846 3,469 3,213 2, , 2,121 1,719 1,666 1,578 1, , Q1: EURmn Q1:12 Source: Company reports and Bernstein analysis 15 Global European Autos Autos

16 VW Just How Much Is It Making In China? II Putting It Together VW Group: China Contribution (211) estimated 6% of all profits VW Group: China Contribution (211) Type Amount ( mn) Tax Post-tax ( mn) EPS Impact ( ) Notes Chinese JVs Equity Income 2,616 % 2, We assume no financing costs - VW Brand 2,215 % 2, Audi (reported) 27 % Skoda (est) 131 % EBIT From Parts Sales To Chinese JVs 1,474 3% 1, VW Brand 63 3% Audi 871 3% EBIT From Exports To China 792 3% VW Brand 176 3% Audi Brand 579 3% Lamborghini, Bentley 38 3% 26.6 License Fees - Chinese JVs 1,56 3% 1, VW Brand 1,71 3% Audi 3 3% Skoda 135 3% Total - VW Group China EBIT 3,772 3% 2, VW Group EPS (excludes Porsche revaluation gain) 19.5 China contribution 6% Source: Bernstein analysis 16 Global European Autos Autos

17 The China Dream How Long Will It Last? Appetite for premium vehicles amongst > $1k earners have accelerated dramatically this decade and China has the highest premium consumption per >$1k earners of countries sampled China: Premium Car Sales per Households with Annual Disposable Income Over $1k (2-1) 4 4 Global: Premium Car Sales per Households with Annual Disposable Income Over $1k (21) Sales per Thousand Sales per Thousand China UK Germany Italy Spain Canada US Switzerland France Australia Brazil Japan Source: Euromonitor International, U.S. Census Bureau, Forbes, IHS Global Insight and Bernstein analysis 17 Global European Autos Autos

18 The China Dream II - Premium Car Saturation? Nationally, premium sales penetration remains below that of the US (7% vs. 11%); however, at a coastal level, premium penetration is already above US levels Source: C.A.D. and Bernstein analysis 18 Global European Autos Autos

19 China ARPU Is Uniquely High China affords BMW the highest ARPU it achieves globally BMW Global ARPU by Region 211 8, 7, 67,987 6, 5, 45,946 ARPU (EUR) 4, 3, 33,878 38,91 37,545 Average = 37,5 26,626 3,927 2, 1, Europe ex Germany & UK North America Germany China Imports (+parts) Other Asia UK Other Markets Source: Company reports and Bernstein analysis 19 Global European Autos Autos

20 Meaning China Profitability Is Consequently Huge and BMW s largest region in terms of profit contribution BMW Global profit by Region 211 4, 3,5 3, 2,5 EUR mn 2, 1,5 1, , -1,5 Europe ex Germany & UK North America Germany Asia (non China) China UK Other Markets E? Source: Company reports and Bernstein analysis 2 Global European Autos Autos

21 The Debtor OEMs Without Chinese Profits: How Bad Is It? European OEM balance sheets shows a picture similar to national balance sheets... European OEMs: Net Cash/(Debt) (27-211) bn BMW Daimler Fiat Auto* PSA Renault VW FY:27 FY:28 FY:29 FY:21 FY:211 Note: The French OEMs report changes in net debt on a half-year basis. * Fiat Auto includes consolidation of Chrysler s net debt. Source: Corporate reports and Bernstein estimates and analysis. 21 Global European Autos Autos

22 What Does The Stock Market Think? Global OEMs Stock Price Performance OEM Groups Stock Price Performance Rebased to 1 as of Jan 1, Rebased to 1 as of Jan 1, Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 VW BMW Daimler PSA Renault Toyota Nissan Honda Hyundai Kia Ford GM Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 German French Japanese Korean US Source: Bloomberg and Bernstein analysis 22 Global European Autos Autos

23 What Happens From Here? The value of companies gives an idea of how financial markets see the future...there is little or no correlation between volume and value (see PSA and Fiat)...plus the market is anticipating mean reversion (German margins to roll over and Japanese climb?) Global OEMs: Market Cap vs. 211 Sales Volume Market Cap (EUR bn) Toyota VW Group Honda Daimler BMW Hyundai-Kia Nissan Ford GM SAIC RNO Suzuki Fiat Group PSA Mazda Sales Volume (mn Units) Market Cap (LHS) 211 Sales Volume (RHS) Source: Bloomberg, corporate reports and Bernstein analysis 23 Global European Autos Autos

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