Eu European automakers Loading... : Investor Sentiment and Bull/Bear Views

Europe's auto sector is losing jobs and closing factories as Chinese EV imports and overcapacity push Europe toward protectionist measures, creating negative economic and political pressures.

European autos and luxury goods are underweights. The negative factor from China on exports remains, and while there are signs of turning, the risk is not yet priced in enough. The strategy team stays underweight these consumer-exposed sectors.

Conditional tariffs on Chinese cars are now necessary to prevent the European auto industry from being completely hollowed out. Strategic capacity, national security, and the risk of weaponized interdependence justify intervention, and even long-time free-trade advocates are changing their minds. This protection supports European auto manufacturers while damaging Chinese auto exports into Europe.

The EU-India deal is a shot in the arm for European carmakers that have long struggled in India, allowing them to import vehicles at lower duties and giving them access to a market where they had limited scale.

The EU-India free trade agreement opens the Indian market to European car companies, a particularly big deal for Germany, Europe's major auto producer.

Heavily subsidized Chinese EVs are set to undercut European automakers. BYD cars are already everywhere across the developing world and in Mexico City, are about to be shipped to Canada, and are getting footholds in Europe; there is no way the Chinese government is not subsidizing them by 30-50%, and it subsidizes at the finished-product level so the entire supply chain - battery makers, transmission makers - benefits. They have been at the English car manufacturers for a while and the Germans, who still make great cars, are next: few buyers will pay $40-60K for a BMW, Volvo or Audi when a comparable BYD costs $20-40K, and tariffs are the main protection against this price dumping.

Trump's additional tariff threat on European countries will pressure European exporters. He expects the European auto sector to come under pressure and key luxury names exposed to the U.S. market to take a hit.

Chinese automakers led by BYD are penetrating deeply everywhere, from Europe to the Middle East, because their cars have all the features and functionality at really low cost, and European automakers are dejected because they do not know how they will compete with Chinese industry. The US has the self-driving innovation that lets next-generation automakers win the platform shift, but it lacks the manufacturing capability to build as cost-effectively as a Chinese maker, so the world order in autos is shifting toward China until the US fixes manufacturing cost; self-driving that is not cost-effective will never be a mainstream product.

Chinese EV makers have made more progress in autonomous-driving miles and training data than Western peers, and Chinese EVs are decimating European competition. That positions Chinese EV manufacturers well in the US-China EV battle over the next 18-24 months while leaving European automakers vulnerable.

Chinese EV overcapacity and subsidized production are leading to dumping of cheap cars into Europe, which is destroying the European car sector and angering European producers.

European auto markets are frightened that highly competitive Chinese EVs, such as BYD's $16,000 model, will flood their markets. If trade were free, Chinese cars would make enormous inroads, threatening European automakers' market share.

Declining to discuss specific positions, Baker says he agrees 100% and adds his own reasoning: the legacy Western automakers are going to lose their Chinese business because they no longer make competitive products, and absent massive protectionism they end up caught between Tesla and the Chinese OEMs. The only real risk to the bear case is government intervention, since these companies are such large employers and are seen as national champions - but absent significant government support they are all in deep trouble.