(BFM Bourse) – The Oddo BHF bank published a study before the European elections listing certain values to follow after the outcome of this election. They include automakers, defense groups and semiconductors.
If the European elections constituted a political shock in France, because they were followed by the announcement of the dissolution of the National Assembly, the situation is different on a European scale.
According to estimates cited by Agence France Presse (AFP), the nationalist and radical rights would progress within the European Parliament, but with a limited gain (from 118 to 131 deputies out of 720). The “grand coalition” made up of the right (EPP), centrists (Renew Europe) and social democrats should retain a majority of 404 seats. This process must also result in a new European Commission, which will likely still be led by the outgoing president, Ursula von der Leyen.
Which sectors and actions will face significant challenges with this new European mandate? In a note published before this election, the broker Oddo BHF gave some examples, also citing values to favor.
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The “Chips Act” for semiconductors
The bank particularly mentioned semiconductors, with the Franco-Italian STMicroelectronics, the German Infineon Technologies, and the Dutch ASML, ASMi and BE Semiconductors Industries.
These securities will benefit directly or indirectly from the “European Chips Act”, which came into force in September 2023. This European regulation aims to double the share of European groups in global chip production, from 10% to 20%, by to 2030. The development of this text was triggered by chip supply shortages in several industries (notably the automobile industry) which led leaders to want to relocate part of the production to the Old Continent. This involves an envelope of 43 billion euros of private and public funds.
“The objective is considered by many players as too ambitious, because going from 10% to 20% in a market which is expected to double by 2030 means quadrupling production,” notes Oddo BHF. But the broker considers that in any electoral scenario, the “European Chips Act will not be called into question”. “It is even necessary that it be reinforced to achieve the objective of 20% of semiconductors manufactured in the European Union,” explained the design office.
An “awareness” for the defense
Defense is another sector that could potentially benefit from recent or new initiatives. The outbreak of war in Ukraine was a belated awareness of the underinvestment of many countries in this area, because defense had previously been of secondary importance (to put it mildly) on a European scale.
“We estimate that the 27 members of the European Union will continue their investment effort in defense to reach the threshold of 2% of GDP this year before moving towards 2.5% in 2028-29, at the end of the mandate of the new Commission”, judged Oddo BHF.
If defense remains above all a national subject, the European Commission recently proposed a European military sales mechanism, with the objective of acquiring 40% of equipment jointly and 50% for equipment produced within the Union. European.
This belated awareness of Europe’s role in defense should result “in additional budgets which will irrigate all the titles exposed to this theme”, wrote Oddo BHF. Which is more particularly positive for groups with strong exposure to European countries, the broker citing the Germans Hensoldt (86% of revenues in Europe) and Rheinmetall (71%), the French Thales (69% of revenues from the Defense and Security division ) as well as the Swedish Saab (65%).
The automobile on the front line
The automobile was at the forefront of the electoral campaign. The ban on sales of new thermal vehicles by 2035 for the vast majority of manufacturers has often come up in the debates between the heads of the lists. Remember that a review clause for 2026 exists on this ambition.
“The expected strengthening of the populist fringe within the European Parliament raises the risk of giving in to more short-term considerations which could call into question the electrification trajectory of the bloc (European, Editor’s note),” wrote Oddo BHF. The thorny subjects linked to threats of job cuts, the loss of competitiveness with China or the excessively high prices of electric vehicles constitute all potential arguments which could resonate with certain elected officials, and not only with the extreme right, but also within the largest party in the European Parliament, the EPP (conservatives), underlined Oddo BHF.
“More generally, the rise of Eurosceptic sentiment could weaken the Union against its competitors. China and the United States have both deployed very generous public support policies towards the automobile sector in recent years, the first with subsidies on electricity which created national champions in the segment, and the latter with a reindustrialization plan (IRA) which caused a massive influx of investments in the country”, analyzes the broker. “European competitiveness has found itself heavily burdened by these initiatives, provoking calls for a European-style IRA,” adds the research office.
Certainly, in absolute terms, a shift in European ambitions in terms of electrification could be received positively in the short term. But these questions create unwelcome uncertainty as many automotive groups have incurred significant investment expenditure over long cycles, of seven to ten years.
Stellantis and Renault to favor
“Thus, a late change in the rules could be very costly for manufacturers and equipment suppliers who have already made significant investments in the energy transition. In addition, the extension of the lifespan of the thermal engine would force manufacturers to invest on two modes of energy instead of one and, undoubtedly also, to lose competitiveness internationally”, judged Oddo BHF.
In this context, the broker noted that the climate of uncertainty pleads in favor of the most flexible groups, such as Stellantis and BMW, which have multi-energy platforms (common production base of the bottom of vehicles for different models), and can thus adapt, as well as for Renault, due to its European exposure, a much healthier market than hypercompetitive China. “Conversely, equipment manufacturers would, once again, be the first victims” of a change of gear by the European Union, warned Oddo BHF.
Other sectoral impacts – which we have not chosen to develop – were studied by the broker in certain sectors. For example, Oddo BHF estimated that a relaxation of European consolidation policies for airlines would benefit the majors (Air France-KLM, IAG, Lufthansa) or that the pursuit of decarbonization with an intermediate objective of reducing Co2 in 2040 (before total neutrality in 2050) would benefit the oil companies most advanced in terms of decarbonization, such as Totalenergies, Repsol and Eni. “A notable shift in European policy in terms of technological sovereignty in the cloud” could also have a favorable impact on players such as OVHcloud or the German IONOS “but also on Dassault Systèmes which has its own cloud infrastructure”, explained again Oddo BHF.
Julien Marion – ©2024 BFM Bourse
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