The ETF Lyxor AUT (UCITS), created in 08/2006 is listed on Euronext (Euro) and tracks the Stoxx600 Automotive index. It allows the investor access to a basket of 16 major European stocks in the automotive sector, which are primarily German (60% of the capitalization).
The cost of this ETF is 0.3% in the middle of the range of our selection and the AUM is approximately € 40m. The replication method is indirect (via a swap) and the distribution method is by capitalization.
Alternative ETFs: CARZ (First Trust, in USD) EXV5 (iShares in Euro)
Latest developments
The Automotive Europe index grew by 15.1% in 2017, significantly more than the Stoxx600NR (+ 10.6%), but it decreased by 25.5% in 2018, compared to a drop of 10.7% for the benchmark.
The automotive sector was under heavy pressure in Q418 due to multiple factors, in particular the new European homologation rules, and the reversal of the Chinese market where most of the major German manufacturers profits are realized. Moreover fears of tarifs on cars manufactured in China and exported to the US or on US imports of European cars have fueled fears of investors.
The sector seems to have reached its peak cycle, with an already effective decline in the US market, which is now affecting China and soon Europe. The key question is now about the downside potential of the car market, particularly in China, where the automotive market has been growing for 30 years. A sharp decline of 15% in the market would have a very strong impact on the industry.
In contrast, rumors of sector bail in by the Chinese government support the sector.
Index & components
This index could almost be qualified as German because the first three stocks account for 42%of the index (Daimler: 22%, Volkswagen 12.8% and BMW 11.2%), while around a quarter of the index is composed of French stocks (Michelin, Peugeot, Renault, Valeo).
AUT is a rather narrow tracker which can be very volatile, because very cyclical, while deep transformations are in progress (electric car / autonomous car).
The Chinese market is becoming the most important in the world and alliances are becoming an essential part of gaining market share. The Volkswagen scandal on emissions - and the involvement of other manufacturers such as Renault and Fiat - are expected to deeply transform the market, which is likely to mean diesel deaths in the medium term and accelerating the transition to the hybrid and the all-electric a little later when batteries autonomy will allow it.
A new factor of complexity is the US administration, much more protectionist and that will not facilitate the task of European manufacturers.
The intrinsically high volatility of this sector is expected to increase further in the future. Pressure on prices is high, but productivity gains are increasing and a number of manufacturers are doing well thanks to maintenance (spare parts, service). Another potential problem is the rise in interest rates, which if continued, could negatively impact sales of vehicles that are mostly carried on credit or leasing.
The current growth is mainly achieved in Europe and China, but in the longer term it seems to increasingly favor its domestic manufacturers and the electric car. The automotive sector is expected to remain volatile and face many shocks (technological in particular) in the future, while the electric car revolution accentuates the race to the critical size. Connectivity and the autonomous car will open the field to new disruptive industrial business models and new players like major technology companies could come to transform the industry in depth.
