A brand new automotive sector report from Bloomberg Intelligence (BI) states that the exhaustion of pent-up demand may strain EU automakers’ margin and free money in H2.

Sturdy pricing and restructuring have boosted these metrics because the pandemic, feeding bold electric-vehicle spending, €60 billion-plus (£52bn) purchase backs and high-single-digit dividend yields amid traditionally low valuations.

European automakers are resorting to buybacks and elevated dividends to spice up shareholder returns amid traditionally low valuations. Steadiness sheets are nonetheless flush with money because of robust post-pandemic pricing, with many prioritizing the manufacturing of their highest-margin autos amid provide constraints.

Michael Dean, senior autos analyst at Bloomberg Intelligence, stated: “BMW, Mercedes and Stellantis have approved buybacks of as much as 10% of share capital (value greater than €60 billion, as of July 13), whereas Ferrari is on the third tranche of a €2bn programme. Collectively, these corporations spent €3.8bn up to now 12 months.

“After a strong H1 with robust pricing embedded into order backlogs and quantity recovering from recession-like lows, the sector stays assured that free money circulate will stay strong in 2023.”

VW liquidity increase means no rush for Lamborghini IPO

Volkswagen’s IPO of Porsche AG in September 2022 was a hit, notes BI, although its remaining 75% stake has but to be mirrored in its valuation, given the corporate is unlikely to crystallize that stake by promoting down its preference-share holding additional.

The latter would not have an effect on VW’s management of the posh model however may enhance the free float.

With the IPO boosting industrial liquidity to €38 billion in Q1, the necessity for a money increase from a possible Lamborghini IPO – which can attain €20 billion, based mostly on BI’s calculations – seems restricted.

Certainly, notes BI, that was the tone adopted by CEO Oliver Blume on the June 21 capital markets day, when he mentioned the Model Progressive division, which incorporates Audi, Lamborghini and Bentley. Porsche and Mercedes have overtaken VW when it comes to market capitalization this yr.

Capital depth persists amid the transition to BEVs

World car gross sales are anticipated to climb in 2023-24, based mostly on consensus, although stay considerably under pre-pandemic ranges on account of looming recessions in key markets. That is regardless of easing supply-chain constraints.

Dean added: “A modest quantity restoration will assist worth self-discipline however might hinder European automakers’ skill to satisfy bold mid-decade targets for the BEV gross sales combine, given there’s restricted incentive to promote lower-margin BEVs above these wanted to attain emissions goals.

“Capital spending elevated in 2022 and is anticipated to remain elevated in 2023 (at 5.7% of gross sales, according to 2019) as friends revamp car portfolios and vertically combine provide chains to fend off competitors from new US and Chinese language EV entrants.”

Moreover the transition to BEVs, BI stated EU automakers are allocating extra capital to satisfy their software program targets.