European automotive stocks are currently very unpopular,to the extent that investors are continuously reducing their holdings.

The issues plaguing the European automotive industry have led to valuations near historical lows,which is usually a significant incentive for potential buyers.

Data shows that the Stoxx 600 Automobiles & Parts Index is one of the worst-performing indices this year.

Analysts predict that profits for European car manufacturers will decline by 13.6% in 2024.

Investors believe that drastic cost-cutting has become inevitable,driven by complex technological shifts,fiercer market competition,and consumers' increasing price sensitivity.

Analysts say that economies of scale will be key,especially for mass-market brands like Volkswagen.

The current price-to-earnings ratio of European automotive stocks is at a near-record discount of 60% compared to the broad market represented by the pan-European Stoxx 600 Index.

A survey by Bank of America this month found that among European fund managers overseeing $284 billion in assets,automotive stocks are the most undervalued.

Rolf Ganter,Chief Information Officer for European Equities at UBS Global Wealth Management,said,"Pricing has fallen from peak levels,stagnant sales growth,and rising labor costs have left some of these stocks with downside potential.

If the situation worsens,they could easily fall another 10% to 20%."

"Valuations are really cheap,but we are fundamentally bearish on the industry."

Volkswagen,BMW,Mercedes-Benz,Renault,and Stellantis have seen their share prices drop 29% to 50% from this year's peaks,falling to multi-month or even multi-year lows.

Gilles Guibout,Head of European Equity Strategy at AXA Investment Managers,said,"The Western automotive industry is facing a huge challenge due to the advantages of Chinese cars,and people are unwilling to spend as much on electric vehicles as they did a few years ago."

"Either you can raise prices and justify the premium to customers,which means your brand is worth the premium.

Or you must cut costs.

There are no other options."

In August of this year,EU car sales fell by more than 18% year-on-year.

Among them,pure electric vehicle sales fell by 44% year-on-year,with a sharp decline in sales in Germany and France,the two largest electric vehicle markets in the EU.

Andreas Bruckner,an investment strategist at Bank of America,said,"There could be quite a few profit warnings,which indicates that now may not be the time to buy European automotive stocks."

Due to the cooling demand for electric vehicles among European consumers,several major car manufacturers have scaled back their electrification plans.

Volvo Cars of Sweden abandoned its goal of becoming fully electric by 2030 earlier this month.

Carlo Franchini,Head of Institutional Clients at Banca Ifigest Bank,said,"For electric vehicles,you need to address the most basic issues,starting with power generation and the systems that make the project viable."

"It's not a bad idea to reduce exposure to the automotive industry now."

There are also risks in exiting electrification.

Luca de Meo,CEO of Renault,recently warned that European car manufacturers exceeding the EU's carbon emission limits in 2025 could face nearly $20 billion in fines due to the slowdown in electric vehicle demand.

Chiara Robba,Head of LDI Equities at Generali Asset Management,said,"It's hard to say whether the negative news about the European automotive industry has bottomed out.

Even if valuations are attractive,it could be a value trap without a recovery."

"The industry needs support from a comprehensive transformation of the supply chain,manufacturing,and charging infrastructure to help improve demand for electric vehicles."