Hedge funds bet against European carmakers on Chinese competition fears

{"text":[[{"start":8.4,"text":"Hedge funds are betting against the debt and equity of some of Europe’s largest carmakers, as the sector struggles to cope with growing competition from China."}],[{"start":16.9,"text":"Funds have upped their bets against the long-dated and perpetual debt of Stellantis, Volkswagen, BMW and Mercedes-Benz this year — with bonds issued by the first two of these among the most shorted in Europe — on concerns that an influx of Chinese competitors, sluggish demand and US tariffs pose long-term threats to the European industry."}],[{"start":37.65,"text":"Carmakers’ equity is also being targeted, with tens of billions of euros wiped off the sector’s market value this year. Marshall Wace and Two Sigma were among those running short bets, according to data group Breakout Point."}],[{"start":51.8,"text":"“China has become a source of competition rather than profits,” said Adrien Brasey, an automotive equity analyst at AlphaValue. “Investors are increasingly questioning whether the industry’s earnings power can ever return to pre China-slowdown levels."}],[{"start":66.39999999999999,"text":"“[Investors] are probably realising that this isn’t a cyclical decline but much more of a structural one,” he added."}],[{"start":null,"text":"

"}],[{"start":73.44999999999999,"text":"A bond issued by Stellantis — which owns brands including Jeep, Fiat, Vauxhall and Citroën — was the most shorted in the European investment-grade category tracked by Bank of America, as of late May."}],[{"start":86.19999999999999,"text":"More than 18 per cent of the group’s €800mn bond maturing in 2035 was on loan — a proxy for short selling — as of June 12, up from 14 per cent at the start of the year, according to S&P Global Market Intelligence. Funds are also shorting 7.2 per cent of a €500mn Stellantis bond maturing in 2036 and 9.7 per cent of its €1.8bn perpetual bond issued in March, according to S&P."}],[{"start":113.69999999999999,"text":"In the company’s equity, investors are betting against 5.8 per cent of its free float, up from 1 per cent at the end of December. Hedge funds Marshall Wace, Two Sigma and Kintbury Capital were among those running bets against the shares, according to Breakout Point."}],[{"start":130.39999999999998,"text":"“Market share gains from Chinese [manufacturers] are clearly a major factor driving the short interest in some of the European automakers,” said Tom Steabler, a senior credit investment analyst at Federated Hermes. “[They] are now highly competitive on battery technology, software integration and manufacturing efficiency.” "}],[{"start":null,"text":""}],[{"start":148.74999999999997,"text":"BYD and other brands from China — the world’s biggest car exporter — have made inroads into European markets with affordable electric vehicles and hybrids. In the first four months of the year, Chinese manufacturers including BYD and Geely took an 8.5 per cent share of the EU market, compared with 6 per cent in the same period a year earlier, according to European car industry body Acea."}],[{"start":174.69999999999996,"text":"Stellantis, Volkswagen and Renault this month called for the introduction of “Made in EU” targets that would reward manufacturers that keep production in the bloc, as a way of trying to safeguard the future of the European industry."}],[{"start":189.39999999999995,"text":"Volkswagen was ranked as having the third-most shorted investment-grade bond in Europe at the end of May, according to BofA. The company’s riskier perpetual bonds have been targeted, with shorts against its €750mn junior note jumping from under 9 per cent at the start of the year to 16.2 per cent in June. Shorts against a €750mn perpetual bond have risen from 4.6 per cent to 7.9 per cent."}],[{"start":218.04999999999995,"text":"Chinese companies’ rapid advances in software were giving them an advantage over Europe, AlphaValue’s Brasey said."}],[{"start":224.49999999999994,"text":"“By the time one [European] automaker launches a new vehicle, Chinese competitors have often already launched two, integrating the latest battery technologies and the most up-to-date software and digital features,” he said."}],[{"start":236.89999999999995,"text":"This week, BYD announced plans to spend nearly €2bn by the end of 2027 to develop infrastructure in Europe for its five-minute “flash-charging”."}],[{"start":246.34999999999994,"text":"“Chinese manufacturers have both the balance sheets and the strategic ambition to keep expanding aggressively in Europe. If they continue combining rapid innovation cycles with lower price points, that creates a difficult backdrop for the established European carmakers,” Federated Hermes’ Steabler said."}],[{"start":null,"text":""}],[{"start":263.8499999999999,"text":"In response, European carmakers have increasingly struck partnerships with Chinese manufacturers to benefit from the country’s lower costs and advanced technologies. Chinese carmakers have also been taking over excess production lines from their European rivals."}],[{"start":279.2999999999999,"text":"Funds are shorting BMW’s €750mn 2035 bond and two €500mn bonds due in 2032 and 2033. Bets against a €300mn 2030 bond issued by Mercedes-Benz have risen from 5.5 per cent to 9.2 per cent since the start of the year."}],[{"start":300.9499999999999,"text":"Marshall Wace, Kintbury and Citadel Advisors were also shorting Renault stock, according to Breakout Point."}],[{"start":307.34999999999985,"text":"BMW, Stellantis and VW declined to comment. Mercedes-Benz and Renault did not respond to requests for comment. "}],[{"start":316.34999999999985,"text":"Additional reporting by Kana Inagaki and Euan Healy in London"}],[{"start":328.04999999999984,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1781589352_2284.mp3"}