Title: BofA Securities Forecasts: Navigating the Challenges and Opportunities in Europe’s Auto Industry by 2025

BofA Securities has issued a projection regarding the complex landscape that European carmakers will likely traverse in 2025. The financial services firm anticipates these auto manufacturers will have to grapple with price strains, regulatory constraints, and escalating rivalry from Tesla, a US-based electric car maker, along with competitors from China.

Traditional car manufacturers could find their margins under threat. However, BofA Securities notes that certain auto parts suppliers and select original equipment manufacturers (OEMs) contain appealing prospects.

Among the stocks that BofA Securities has identified for its conviction calls are Continental, Valeo, Pirelli, and Stellantis, all of which have received a “buy” rating.

Continental is favored by the firm, owing to the potential financial benefits that can be realized from its planned automotive separation, cost reductions due to restructuring, and the expected semiconductor windfall that could propel growth in 2025-26.

Valeo, with its reduced capital outlays, cost savings, and lucrative contracts, is primed for significant EBIT and EPS expansion. BofA Securities believes there might be room for a positive earnings or guidance surprise in light of subdued market expectations.

Pirelli boasts strong prospects for high single-digit earnings growth, positioning it favorably amid the demanding auto sector. The resolution of issues with its Chinese shareholder could potentially enhance the stock’s rating.

Post a transitional phase in 2024, Stellantis is projected to bounce back robustly in 2025, driven by superior fixed-cost absorption and minimal fallout from stricter CO2 regulations. If Chairman John Elkann appoints a new CEO, investor confidence could potentially escalate.

While BofA Securities downgraded Mercedes-Benz to “Underperform” due to a weak model cycle and a challenging 2025 due to its transition to the MB.EA platform. The firm predicts these challenges may continue till 2026.

Carmakers confront challenges from the EU’s more stringent emissions targets, which could exert pressure on margins unless regulatory delays offer some respite.

Nevertheless, suppliers seem to be in a stronger position, reaping the benefits from restructuring and lower input costs despite near-term risks such as a potential strike at Volkswagen in early 2025.