Auto Europe (AUT) : Deepening of the decline

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 18 major European stocks in the automotive sector, which are primarily German (58% 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 € 39m. 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 is down by -10.5% in 2018, which compares to an increase of 1% for the benchmark, the Stoxx600NR.

The automotive sector is currently under heavy pressure due to operational disappointments on the part of equipment manufacturers such as Valeo, or more recently Continental (tires), which raise doubts about a potential reversal of the cycle, repeated scandals on emissions, and US policy while D. Trump does not hide his intention to tax imports of cars (German in particular) in case of failure of negotiations with Europe. Mexico and Canada are also particularly concerned by this policy. All in all, the entire supply chain could be disrupted by US protectionist actions, which could weaken the European sector, which is mainly represented by German manufacturers.

The European automotive sector is therefore in danger.

 

Index & components

This index could almost be qualified as German because the first three stocks account for c.42%of the index (Daimler: 20.7%, Volkswagen 10.7% and BMW 11%), 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.