That Germany’s key industry has been on a bumpy path for some considerable time already is clear from the capital markets. The shares of BMW, Mercedes-Benz and VW have suffered double-digit percentage losses over the last year, a much worse performance than that of the DAX, which advanced by almost a fifth over the same period. The downward trend is being accompanied by sluggish sales and declining profitability. Looking at the German market as a whole, there is no improvement in sight: it shrank by 27.8% in August compared with the same month the previous year. New registrations of electric cars have fallen at an even faster rate, with 68.8% fewer customers opting for the eco-friendly option across all makes in that summer month. Industry association the VDA has already revised down its sales target for 2024 and expects a 17% drop in new registrations. The picture on the important Chinese market is currently rather cloudy: while the graph for combustion vehicles is also heading downwards, sales of electric cars – boosted by subsidies – are rising strongly. In August sales of vehicles with alternative drive technology (known as new energy vehicles, or NEVs) climbed 43.2%, accounting for a record 53.5% share of total sales. This did not change the fact, though, that the market as a whole declined for the fifth month in a row. Given the ongoing tailwinds provided by government incentives, however, experts believe that sales will finish 2024 in positive territory. S&P Global, too, believes that more vehicles will be delivered worldwide. The analysts anticipate growth of 1% to 3% this year and reckon that 2025 will see the global car market accelerate slightly to 2% to 4%.
A recovery in the market would also play into the hands of the German trio, assuming the groups get a grip on their home-grown problems. However, the valuations of the companies are now at such a low level that the bulk of the bad news may have already been priced in gradually. The BMW and Mercedes-Benz shares are currently trading at a 2026 PER of just 4, while the figure for VW is just 2.5. It is not surprising, therefore, that the consensus among analysts is to see upside potential despite the atmosphere of crisis. While there could, admittedly, still be downward revisions as a result of recent events, the current average price targets are so high that individual downgrades should not carry too much weight. BMW shares currently enjoy a “hold” rating and have an average price target of EUR 90, a premium of around one fifth on the price now. The majority still rate Mercedes-Benz and VW as “buy”, each at a fair value of 40% above the current price level.
Should the three car shares be able to get out of crisis mode again, their recent considerable underperformance could make a strong U-turn a distinct possibility. It is, of course, extremely difficult to get the timing of this exactly right. What is more, the pessimistic underlying mood mean that further setbacks cannot be excluded. Bonus certificates are the perfect investment solution for this situation, which is why Leonteq has launched two new instruments denominated in CHF and EUR on BMW, Mercedes-Benz and VW. On the upside, the products offer full participation in price rises of the equally weighted basket of shares. On the downside, the structure has a comfortable safety buffer. Investors thus participate 100% in increases in the trio’s share price – and without any limit, because there is no cap. That allows the full price potential of the car securities to be utilised. For the case that one of the three underlyings heads south, the barrier comes into play. It is a comfortable 45% from the starting prices. Should the shares end the three-year term in negative territory, then, but the barrier remain intact, holders of the certificate need not fear any losses. By contrast, at least the bonus level of 130% in the CHF variant and 139% in the EUR variant will be paid out.
If the downward movement of at least one stock gets too fast, however, so that it touches or breaks through the barrier level, the attractive bonus mechanism switches off. The weakest of the trio on final fixing will then prevail, and its performance will determine the repayment. To give an example, if the worst performer falls 5%, the repayment will be reduced to CHF 950 or EUR 950 respectively. This would equate to a loss of 5% on the nominal. Assuming that the securities recover after breaching the barrier, however, so that the weakest member finishes 5% in positive territory, the repayment would be 105%, or CHF 1,050 and EUR1,050 respectively. This example shows that a possible breach of the barrier need not necessarily result in a loss.
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