Many people know Daimler, VW or BMW not only from their securities account but also have one of their products in the garage. No wonder with so much solidarity that the shares of the car companies are among the most popular securities in Germany. Cars have been almost like a commodity in developed countries and in the US, car owners even find the cheapest SR22 bond insurance in Ohio as some states require these car insurance certificates. But recently, there have been repeated setbacks for German automotive companies, not only on the stock market. Exhaust gas scandal, cartel allegations, the monkey and human experiments in diesel exhaust tests, and now also possible driving bans for diesel vehicles in inner cities. Is it still a good idea to invest in the German automotive industry? Is it worth taking a look abroad, and how are suppliers prepared for the future? Here’s an overview for investors.
The German manufacturers
“At the moment, one gets the impression that German car manufacturers are still busy coming to terms with the past,” says Jürgen Pieper, who as a financial market analyst at Bankhaus Metzler keeps an eye on the automotive industry. In any case, the industry will change radically if e-mobility becomes more important in the coming years and cars will drive autonomously in the foreseeable future. “After years of good automotive activity, I expect restraint in the next two years,” says analyst Pieper. At the beginning of the 2020s, when e-cars could become normality and supply increases, demand will also follow suit and an e-car boom will arise, he suspects. This, in turn, will have a positive effect on prices.
But even in the current market environment, very few experts write off the car stocks Daimler, VW, and BMW included in the German stock index (Dax). Among the analysts listed by the news agency Bloomberg, 16 recommend Daimler to buy, and only three to sell. Another 15 advise investors to hold their Daimler securities. These include, for example, DZ Bank, which initially does not expect any major jumps in the share price, but considers “an increase in the further course of the year possible”.
At VW, the vast majority of analysts currently even recommend investors to buy shares – precisely because the price has been particularly shaken by scandals in the past three years and has lost around a quarter of its value. “VW now has to push ahead with even more pressure than others and therefore promises more dynamism than others in the share price,” says Pieper. Of course, some experts see it differently. DZ Bank considers a sale to be sensible because “further charges from Dieselgate” are likely.
And BMW? Among the analysts, there is a divided picture as far as the share of the Munich-based group is concerned: 13 advise buying, twelve recommend holding the share and at least nine suggest selling it. This includes Metzler analyst Pieper. “Although BMW has done better than others in the diesel crisis, it is currently growing less strongly than Daimler, for example,” says Pieper. The fact that BMW, unlike VW and Daimler, does not have a truck and van business, is also having a rather negative effect at a time when the economy is good and the parcel business is booming.
If you want to invest in the automotive industry, you should also keep an eye on foreign automotive stocks and suppliers. Many investors tend to buy some specific and above all domestic stocks – the so-called home bias. As a result, savers do not sufficiently diversify their portfolios. This, in turn, is necessary to limit the risk. For example, when the economy in a country goes downhill.
The star in terms of future technology is the US company, Tesla. An e-car pioneer who recently caused many negative headlines – for example, because the company cannot deliver the mass-market Model 3 on time due to production problems. Analysts at Tesla are also divided. While Berenberg expects Tesla to dominate the market for electric cars in the longer term, the production and delivery problems are of great importance to DZ Bank. She advises investors to sell their Tesla securities. Instead of looking to the US, Metzler analyst, Pieper recommends investors rely on Japanese and Korean carmakers such as Toyota and Hyundai. “They are well positioned for the future,” he says.
As e-mobility gains in importance, traditional suppliers and manufacturers of modules for combustion engines will inevitably have to reinvent themselves in order to remain competitive. “I believe above all in technology-based suppliers that rely on sensors, electronics, and semiconductors,” says Rolf Ganter, an analyst at UBS. A positive example is the M-Dax-listed headlight and sensor manufacturer Hella from Lippstadt, whose products are largely independent of the type of drive, but which also relied on driver assistance systems at an early stage. DZ Bank also considers the Dax-listed supplier Continental to be future-oriented, as it is “well positioned when it comes to electronics”.
If you want to invest in the automotive industry, you can, for example, buy individual shares. However, if you spread the money to be invested among too few securities from one industry, you run the risk of being hit particularly hard by a crisis in the industry.
The experts at Stiftung Warentest once set up the rule of thumb that in the case of a portfolio of individual stocks, the risk is only considered to be spread if it contains at least 30 securities from different countries and industries. A pure automotive portfolio would therefore not be a good idea.
Alternatively, investors can invest in passive funds (ETFs) that track a specific index. Providers such as Comstage, Ishares, or Lyxor offer ETFs on European automotive and supplier stocks. However, they fluctuate comparatively strongly in value. Because the index focuses on one industry and the European market, investors can not only win but also lose a comparatively large amount of money. “In general, we would not advise investors to make such an investment,” says Natalia Wolfstetter, an analyst at fund rating agency Morningstar.
Investors can spread their money better if they bet on ETFs that track the already car-heavy Dax, the cross-sector industrial country index MSCI World or an index with a focus on Asia. Such a broader portfolio could, for example, be enriched with individual car stocks. It doesn’t always have to be the share of the model that’s in the garage.