Six Top Investment Banks Analyze 2018 Automotive Industry Development

Is the tepid auto sales in 2017 the beginning of the new normal?

It is very likely that the new year will be more diverse.

With the series of policy announcements announced by the U.S. government in 2018 and taking into account the potential impact of these policies on the auto industry, it is expected that the overall industry sales will remain stable.

Autopilot technology and electric vehicle technology will continue to make headlines for automakers and suppliers because the industry will strive to find opportunities in a rapidly changing market.

At the same time, car sales will continue to remain stable, and the final figure will be close to the 17.1 million expected sales in 2017.

But this does not mean there are no bright spots in the market in the coming year.

Auto parts retailers are expected to operate well in 2018 and become one of the biggest beneficiaries of corporate tax reform. As more and more car models enter the "best price" range, the demand for parts will be triggered.

On the other hand, car dealers may experience some market weakness after experiencing a surge in demand for several months.

Analysts expect sales to decline in 2018, the Chinese market will cool down, and the industry will experience a legendary shift in technology that changes traditional industries.

Expert Reviews

Morgan Joaquin Adam Jonas:

It is expected that the US car sales will decline by about 5% to 16.5 million vehicles;

The rental trend of US autos will continue to accelerate, because consumers tend not to purchase cars that are used for a long time in the context of the rapid development of auto connectivity, electrification and autopilot technology;

All businesses in the traditional automotive industry want to take a dominant position in new technology opportunities or at least keep up with the trend. There will be more news and information disclosure in the future;

Goodyear Tire was rated as the industry's first choice. Its business model is closer to the "mile economy". In a new industry environment, automobiles (especially self-driving cars) will run more miles, so it can better cater to the needs of the industry. Tire replacement requirements;

It is expected that 2018 will be another difficult year for the car rental industry, especially for the two rental car companies Hertz and Avis.

"Despite the fact that the management of both companies seems to understand the current difficult task, we do not think that investors can get enough compensation for their business risks."

UBS Colin Langan:

Reduced US vehicle sales in 2018 from 17.2 million units to 17.1 million units to reflect the decline in demand caused by the 2017 technical storm;

It is expected that the output of automobiles will increase by about 2%, reflecting the renewal of smaller inventory and increase of production capacity;

For most companies, foreign exchange trading in 2018 may be the growth of sales growth.

The United States tax reform bill will reduce taxes, Ford and General Motors may be reduced by 7%-11%, while the supplier's tax rate is reduced by 2%-4%;

The risk of failure in NAFTA negotiations should not be overlooked, as costs may increase by 0.7% to 5.4%, which represents the risk of GM trucks and suppliers exporting to Mexico and Canada, such as Aptiv, Delphi, Magna, Companies such as Lear and Visteon will be affected.

Royal Bank of Canada Joseph Spak:

The industry is undergoing technological changes, in which secular car brands will be seen as drivers of reform, rather than traditionally established companies.

Global car production may be lower than in 2017, and demand in China and the United States may slow down. It is expected that in 2018, US car sales will fall by 1% to US$16.9 million. But even if the U.S. demand drops to about 16 million in the next few years, this is still a "healthy level";

Since the era of the Internet+, self-driving cars are expected to become the largest new market;

It is expected that the price of used cars will drop slightly in 2018 (possibly at the beginning of the year), as the replacement demand for the technological storm begins to weaken;

The tax reform bill is unlikely to have a meaningful impact on demand, but it may have some comprehensive impact, which is good news for the company;

The risk of a breakdown in NAFTA negotiations could have a devastating impact on the entire automotive value chain.

Philippe Houchois of the American Investment Bank Jefferies:

If Goodyear's market share and earnings momentum reversed in 2018, the company has significant room for growth in terms of earnings and valuation.

FiatChrysler's 2018 performance should be close to its announced key goal, which was released in 2014 and adjusted in 2016 to cover the impact of its Ferrari share split.

Bloomberg Kevin Tynan and Joel Levington:

The new US car's sales cycle is relatively late. Under the influence of price competition, large investments in electric vehicles and autopilot technology, its profit margin is at risk.

The pursuit of new technologies has increased valuations and reduced margins because these emerging projects are either unprofitable or take years to adapt to consumers, so these high valuations may be in 2018. Proved to be vulnerable;

Expectations for auto suppliers continue to decline in 2018 but are still at a level that may be difficult to achieve, as total sales of Ford, GM and FiatChrysler are expected to remain stable in 2018;

The rise in the price of copper and aluminum, as well as the expenditures resulting from the pursuit of industrial trends such as electric and artificial intelligence, and production, may all exert pressure on the industry;

According to Bankrate. According to com.com, the interest rate for auto loans in 2017 has risen by approximately 30 basis points. If this trend continues, consumers' affordability to car prices may also become a challenge for suppliers in 2018;

Convergence and mixed trends among car manufacturers may also have a profit impact on suppliers.

Nomura Securities Anindya Das:

The Chinese market may cool further in 2018, because in the early years, car demand was advanced because of tax incentives for cars, and the United States will remain roughly the same;

In Europe, UK demand continues to be affected by Brexit, but the European continent should be able to benefit from an improved labor market;

US light vehicle sales are expected to reach 17.3 million units in 2018, an increase of 1% year-on-year;

Improvements in US economic conditions, health trends in the labor market, and continued declining oil prices will continue to support the potential demand for automobiles;

Tesla is the first choice for the automotive industry in the United States;

The company was recommended because its mileage per dollar of electric vehicles “clearly cannot be exceeded” and believes that it will eventually overcome the production limits of Model3;

In 2018, it is expected that the electrification speed of automotive power systems will continue to accelerate globally.

Susquehanna Investment Bank AliFaghri:

The fundamentals of auto parts retailers are expected to improve in 2018;

The sector’s performance was significantly lower than that of the S&P 500 Index due to the slowdown in sales growth and growing investor concern over potential Amazon collapses;

Surveys and company statements have shown that the industry’s sales trend is increasing;

By 2018, same-store sales are expected to improve further, because the comparison is easier, the trend of vehicle fleet age mixing has improved, and previous weather factors have depressed demand;

Demand for the 6-11 year-old automobile market has come to the best position, and it is expected to start to grow again after contraction in 2018, driven by the increase in sales of auto parts retailers when their potential market expands;

Look to Advance AutoParts auto parts retailers and O'Reilly Automotive Motors;

The fundamentals of the car dealer industry will deteriorate further in the next few quarters, which may bring about multiple pressures;

Industry data shows that as the SAAR (seasonally adjusted annualized sales rate) of new cars decreases and the trend of used car prices starts to reverse, the effects of previous rides began to subside, and the benefits of tax reform began to affect the stock price;

In addition to mergers and acquisitions, the possibility of unexpected profit growth is small;

Look for Penske Automotive and Lithia cars.

National Automobile Dealers Association:

With the continued healthy growth in the demand for light trucks, off-road vehicles and cross-border vehicles, it is expected to sell 16.7 million new cars and light trucks;

By 2018, new car dealerships will have 15.3 million used cars, while in 2017 the used car sales are expected to be 15.1 million.