german share gains in europe: unprecedentedand until the euro … · 2018. 11. 21. · 3 european...

See Disclosure Appendix of this report for important Disclosures and Analyst Certifications See Disclosure Appendix of this report for important Disclosures and Analyst Certifications

June 21, 2012

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 [email protected]

Prudential Tower 50 Berkeley St No. 30 Cecil Street London Singapore 049712 W1B 8SB, UK +65-6230-4600 +44-207-170-0588

European Autos 2 2 Global Autos

The Decline And Fall Of European Profitability

European Volume OEMs Average EBIT Margin

European OEM EBIT margins have been in structural decline for two decades

Source: IHS Global Insight and Bernstein analysis

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EBIT

Mar

gin

(%)


Is Anybody Making Money In European Autos?

2007 vs. 2011 Auto EBIT Margins

Source: Corporate Reports and Bernstein analysis 1. FY 2012 for Japanese OEMs

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 2012

6.4%

9.1%8.0%

2.6% 2.0% 1.8%3.0%

2.0%

-7.3%

3.5% 4.0%

11.8%

9.0%

12.1%

4.0%

1.2%

-0.2%

2.8%

-0.1%

-2.8%

0.9% 1.4%

-10%

-5%

0%

5%

10%

15%

BMW Mercedes Audi VW brand Renault PSA Fiat Ford Europe GM Europe Toyota Europe¹

Nissan Europe¹

EBIT

Mar

gin

(%)

2007 2011


Unstoppable German Market Share Gains since The €uro

2000 vs. 2011 German OEM Market Share in Western Europe

Source: IHS Global Insight and Bernstein analysis 1. Includes Volkswagen, Audi, SEAT and Skoda

“We are all talking German now”…onwards and upwards, German OEMs have gained market share since 2000...the point where the Euro was introduced…

25.9%26.3%

26.0% 25.7% 25.7%

26.9%

28.0% 27.9%

29.1%28.4%

29.2%

31.3%

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mar

ket S

hare

(%)


Is This Unprecedented? In Europe – Yes; Globally – No.

US Market Share of Japanese OEMs 1990-2005

US Market Share of Korean OEMs 2005-2011

UK Market Share of French and German OEMs 1990-2005


Several of the automotive success stories of the past few decades…

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2005

2006

2007

2008

2009

2010

2011

Mar

ket S

hare

(%)

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Mar

ket S

hare

(%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Mar

ket S

hare

(%)

German Mkt Share French Mkt Share


Currency Explains A Lot Of It

US Market Share of Japanese OEMs 1990-2005

US Market Share of Korean OEMs 2005-2011

UK Market Share of French and German OEMs 1990-2005


…can be partially explained by favourable foreign exchange rates

0

20

40

60

80

100

120

140

160

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

USD

/JPY

Mar

ket S

hare

(%)

Market Share USD/JPY

0

200

400

600

800

1000

1200

1400

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2005

2006

2007

2008

2009

2010

2011

USD

/KR

W

Mar

ket S

hare

(%)

Market Share USD/KRW

0

20

40

60

80

100

120

140

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Exch

ange

Rat

es R

ebas

ed to

100

as

of J

an 1

, 199

0

Mar

ket S

hare

(%)

German Mkt Share French Mkt ShareGBP/DEM GBP/FRF


When Did Germans Focus On Europe?

VW Operating Profit in North America 2000-2011 VW Market Share in Europe 2000-2011

Source: ACEA, Bloomberg, IHS Global Insight and Bernstein analysis

VW used to rely on the US for its profitability...this was wiped out in 2003 by US$ devaluation....almost immediately after, VW turned its attention to growth WITHIN Europe

1,664

1,287

-168

-907 -843

-607-700

-900-700

-500-300

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

-1500

-1000

-500

0

500

1000

1500

2000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EUR

/USD

Ope

ratin

g Pr

ofit

(EU

R m

n)

18.9%18.4%18.2%18.1%

18.9%

19.8%19.5%

20.4%20.9%21.0%

22.9%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

22.0%

23.0%

24.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mar

ket S

hare

%


Do German Gains In Europe Look Like A Currency War?

Germany and Eurozone Real Effective Exchange Rate 1999-2011

Adjusted for cost competitiveness, Germany’s real effective exchange rate has depreciated almost 20% 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)

Source: Eurostat and Bernstein analysis

107.3

88.9

80

85

90

95

100

105

110

115

120

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1999

= 1

00

Eurozone Germany


0

1

2

2002 2012

USD/EUR

0.1

0.2

2002 2012

USD

/ RM

B

0.005

0.015

2002 2012

USD

/ JPY

0

1

2

2002 2012

EUR/USD

0

1

2

2002 2012

GBP/EUR

Should a Creditor Nation Have A “Natural Brake”?

Current Account Balance

Source: IMF, Bloomberg and Bernstein analysis

Currency Movement 2002-2012

+30.0% +68.3%

201120

205

-46

-473-600

-500

-400

-300

-200

-100

0

100

200

300

China Japan Germany UK US

Cur

rent

Acc

ount

Bal

ance

(U

SD b

n)

+39.8% -24.5% -28.5%

Since 2002 ‘creditor’ countries (China & Japan) have seen their currencies appreciate 46.0% 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)


Previous Crises Saw Competitive Devaluations

French OEMs Market Share in Western Europe Italian OEMs Market Share in Western Europe

French & Italian OEMs benefitted from weaker domestic currencies in the early to mid-1990s

Source: IHS Global Insight, Bloomberg and Bernstein analysis

3.2

3.25

3.3

3.35

3.4

3.45

3.5

3.55

3.6

21.0%

21.5%

22.0%

22.5%

23.0%

23.5%

24.0%

24.5%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

DEM

/FR

F

Mak

ret S

hare

(%)

French OEM Market Share DEM/FRF

0

0.0002

0.0004

0.0006

0.0008

0.001

0.0012

0.0014

0.0016

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

DEM

/ITL

Mak

ret S

hare

(%)

Italian OEM Market Share DEM/ITL

European Autos 11 11 Global Autos Global Autos

Devaluation = Automotive Success

UK Trade Balance in Cars 2000-2012

Q: What European country saw the biggest % increase in auto production in 2011? A: The UK....in Q1 2012 the UK recorded a trade surplus in cars – its first since 1976

Source: UK ONS and Bernstein analysis

1.5

1.55

1.6

1.65

1.7

1.75

1.8

-1000

-800

-600

-400

-200

0

200

400

600

Jan-

00M

ay-0

0Se

p-00

Jan-

01M

ay-0

1Se

p-01

Jan-

02M

ay-0

2Se

p-02

Jan-

03M

ay-0

3Se

p-03

Jan-

04M

ay-0

4Se

p-04

Jan-

05M

ay-0

5Se

p-05

Jan-

06M

ay-0

6Se

p-06

Jan-

07M

ay-0

7Se

p-07

Jan-

08M

ay-0

8Se

p-08

Jan-

09M

ay-0

9Se

p-09

Jan-

10M

ay-1

0Se

p-10

Jan-

11M

ay-1

1Se

p-11

Jan-

12

GB

P/EU

R

Trad

e B

alan

ce (G

BP

mn)

UK Trade Balance in Cars GBP/EUR


What Can Be Done Absent A Currency Break?

Unit Labour Cost Among European Countries

In 2000, Germany’s unit labour cost was highest among European countries...since then it has become far more competitive

Source: Eurostat and Bernstein analysis 1.  2012 and 2013 are Eurostat estimates

122.9

110.6

122.5

129.5

134.3137.0

80.0

90.0

100.0

110.0

120.0

130.0

140.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E

Reb

ased

: 200

0 =

100

Eurozone Germany Spain France Italy UK


VW – How Is It Taking So Much Share In Europe?

Source: Volkswagen

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


VW – Chinese Profits Subsidising European Strategy

VW Group: China Proportionate Operating Profit (Q1:02-Q1:12)

Source: Company reports and Bernstein analysis

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

-100

0

100

200

300

400

500

600

700

800

900

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

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

EURmn


VW – Just How Much Is It Making In China?....Parts Sales

VW Group: Parts/Components Revenue From Chinese JVs (2001-2010)

VW Group: Parts/Components EBIT From Chinese JVs (2001-2010)


Parts and component revenue makes a very substantial contribution to VW brand profit and cash flow, subsidising European operations

1,7192,121

2,896 2,846

1,666 1,578

2,717

3,2133,469

4,838

7,368

1,968

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Q1:12

EURmn

430

530

724 712

333 316

543

643694

968

1,474

394

0

200

400

600

800

1,000

1,200

1,400

1,600

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Q1:12

EURmn


VW – Just How Much Is It Making In China? II – Putting It Together

VW Group: China Contribution (2011) – estimated 60% of all profits

Type Amount (€mn) Tax Post-tax (€mn) EPS Impact (€) NotesChinese JVs Equity Income 2,616 0% 2,616 5.81 We assume no financing costs

- VW Brand 2,215 0% 2,215 4.92- Audi (reported) 270 0% 270 0.60- Skoda (est) 131 0% 131 0.29

EBIT From Parts Sales To Chinese JVs 1,474 30% 1,031 2.29- VW Brand 603 30% 422 0.94- Audi 871 30% 610 1.35

EBIT From Exports To China 792 30% 555 1.23- VW Brand 176 30% 123 0.27- Audi Brand 579 30% 405 0.90- Lamborghini, Bentley 38 30% 26 0.06

License Fees - Chinese JVs 1,506 30% 1,054 2.34- VW Brand 1,071 30% 750 1.67- Audi 300 30% 210 0.47- Skoda 135 30% 94 0.21

Total - VW Group China EBIT 3,772 30% 2,640 5.87

VW Group - 2011 EPS (excludes Porsche revaluation gain) 19.50

China contribution 60%

VW Group: China Contribution (2011)

Source: Bernstein analysis


The China Dream – How Long Will It Last?

Appetite for premium vehicles amongst >$100k earners have accelerated

dramatically this decade…

40

72 76

12297 93

130

161177

231

340

0

50

100

150

200

250

300

350

400

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sal

es p

er T

hous

and

China: Premium Car Sales per Households with Annual Disposable Income Over $100k

(2000-10)

…and China has the highest premium consumption per >$100k earners of countries sampled

Source: Euromonitor International, U.S. Census Bureau, Forbes, IHS Global Insight and Bernstein analysis

340

176 169

11186

64 58 5340 38 34

15

0

50

100

150

200

250

300

350

400

Chi

na UK

Ger

man

y

Italy

Spai

n

Can

ada

US

Switz

erla

nd

Fran

ce

Aust

ralia

Braz

il

Japa

n

Sale

s pe

r Tho

usan

d

Global: Premium Car Sales perHouseholds with Annual Disposable

IncomeOver $100k (2010)


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


China ARPU Is Uniquely High…

BMW Global ARPU by Region – 2011


China affords BMW the highest ARPU it achieves globally…

33,87838,910 37,545

67,987

45,946

26,62630,927

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Europe ex Germany & UK

North America Germany China Imports (+parts)

Other Asia UK Other Markets

AR

PU (E

UR

)

Average = 37,050


…Meaning China Profitability Is Consequently Huge

BMW Global profit by Region – 2011


…and BMW’s largest region in terms of profit contribution

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Europe ex Germany & UK

North America Germany Asia (non China) China UK Other Markets

EUR

mn

2010 2011 2012E

?


The “Debtor” OEMs Without Chinese Profits: How Bad Is It?

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.

7.1

12.9

0.41.4

-2.1

13.5

9.0

3.1

-6.0

-2.9

-7.9

8.09.0

7.3

-4.4

-2.0

-5.9

10.611.3 11.9

-0.5 -1.2 -1.4

18.6

12.3 12.0

-5.5

-2.9

-0.3

17.0

-10

-5

0

5

10

15

20

BMW Daimler Fiat Auto* PSA Renault VW

€bn

European OEMs: Net Cash/(Debt) (2007-2011)

FY:2007 FY:2008 FY:2009 FY:2010 FY:2011

European OEM balance sheets shows a picture similar to national balance sheets...


What Does The Stock Market Think?

2008-2012 Global OEMs Stock Price Performance 2010-2012 OEM Groups Stock Price Performance

Source: Bloomberg and Bernstein analysis

0

50

100

150

200

250

300

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12

Reb

ased

to 1

00 a

s of

Jan

1, 2

010

German French Japanese Korean US

0

100

200

300

400

500

600

700

800

900

Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Reb

ased

to 1

00 a

s of

Jan

1, 2

008

VW BMW Daimler PSARenault Toyota Nissan HondaHyundai Kia Ford GM


What Happens From Here?

Source: Bloomberg, corporate reports and Bernstein analysis

Global OEMs: Market Cap vs. 2011 Sales Volume

0.01.02.03.04.05.06.07.08.09.0

0

20

40

60

80

100

120

Toyo

ta

VW G

roup

Hon

da

Dai

mle

r

BMW

Hyu

ndai

-Kia

Nis

san

Ford

GM

SAIC

RN

O

Suzu

ki

Fiat

Gro

up

PSA

Maz

da 2011

Sal

es V

olum

e (m

n U

nits

)

Mar

ket C

ap (E

UR

bn)

Market Cap (LHS) 2011 Sales Volume (RHS)

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?)


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