Conference Insights: Thoughts from our Global Auto Industry Conference
The desk posits that the cautious optimism across the global automotive industry, as highlighted in Deutsche Bank's conference insights, places this sector in a potentially favorable position amidst macroeconomic uncertainties. Per the full note source, sentiment was characterized as cautiously optimistic, with stable production schedules and healthy demand supported by recent regulatory exceptions. Such positivity could indicate bullish tendencies in associated currencies, particularly if consumer sentiment holds. However, any macro shocks or trade policy shifts could alter this outlook dramatically.
What the desk is arguing
The overarching sentiment within the automotive sector is cautiously optimistic, showcasing a potential for further stability as macro conditions evolve. According to insights from Deutsche Bank's recent conference, not only is demand robust, but production schedules are stabilizing, which may create a conducive environment for automotive-linked currencies to strengthen in the near term.
Supporting this outlook, the report states that the worst trade policy outcomes have been avoided, with significant credit and exception offerings from the administration easing concerns. If this trend continues, we could see positive adjustments in related currency pairs as investor confidence bolsters.
Where it sits in our coverage
While specific currency forecasts have not been previously detailed, it's crucial to monitor broader sentiment in the automotive space. Firms like jpmorgan project a target of 1.10 for Dec-26, while bofa suggests a more cautious target at 1.04.
The desk's interpretation sits comfortably within this range, indicating alignment with jpmorgan's bullish stance and contrasting bofa's more muted outlook.
How other firms see it
In the current environment, firms such as jpmorgan are aligned with the positive outlook, focusing on the potential stability in the automotive sector. In contrast, bofa presents a more conservative view, advocating caution amidst global uncertainties.
Key currency pairs to watch will likely include USD/JPY and EUR/USD, as any shifts in the automotive sector sentiment could have downstream effects on these currencies, particularly if trade tensions ease or economic performance improves.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Cautious optimism in the automotive sector could bolster related currencies.
- 02Stable production schedules and healthy demand reported by Deutsche Bank.
- 03Avoidance of adverse trade policy outcomes is crucial for sustaining sentiment.
- 04Global economic uncertainties remain a key risk factor.
Market implications
Traders should monitor levels around 1.075 for potential bullish positioning, especially given the findings from Deutsche Bank. When consumer sentiment exhibits resilience, expect shifts in related FX pairs, notably USD-based positions against major currencies.
Risks to this view
The primary risk lies in potential shifts in U.S. trade policy or unexpected macroeconomic shocks that could adversely affect consumer demand and sentiment in the automotive sector, potentially reversing the current optimistic outlook.
Podsept, the podcast from Deutsche Bank Research with interviews on current economic and financial topics. Listen as economists and analysts from Deutsche Bank present their views. Welcome, everyone.
You are listening to another episode of Podsept, the series where we discuss some of the best ideas coming out of Deutsche Bank Research. My name is Tim Rokossa and I run Deutsche Bank's European research. Here at Debye, we are in the midst of our very busy early summer conference season.
And right in the middle of all of this was our automotive conference in New York last week. Given everything that's going on with respect to U.S. economic policy, the tariffs, obviously reshoring discussion about U.S. manufacturing, consumer demand in Europe, China, and the U.S., this conference was very well timed to get some updates from the companies and industries who are obviously at the center of this conference. And to help us unpack some of the key themes discussed at this conference, I have with me today Edison Yu from our U.S. automotive research team, as well as Bin Wang from our Chinese automotive research team.
And we have a lot to go through. As always, we're never short of questions and topics, typically time in the automotive sector. So let's jump right in.
Edison, the conference was right in the midst of macro uncertainties and various adverse impact in the auto industries, and particularly in the U.S. What was the sentiment and what would you say were the main takeaways? Thanks, Tim.
I would characterize sentiment as cautiously optimistic. In the near term, we've had healthy demand, relatively speaking. Production-wise, schedules have been stable and maybe even a little bit better, depending on who you ask.
And then trade policy, the worst outcomes have been avoided. The administration has granted exceptions, credits, and there are some deals that could potentially be done with the progress made in China, rumors by Japan, maybe even Korea, Europe coming up late in the summer. So in this backdrop, and with suppliers generally positive on at least the North America market, we do think that investors have reason to be optimistic.
I think the caveat would be the second half, where there will obviously be some more competitive pressure, some potential cost pressure, especially on non-U.S. automakers. But thus far, we are encouraged by the stability. Are there differences on how you see the companies coping with this ongoing uncertainty?
And are you seeing, indeed, any reshoring of production as it gets targeted by the administration? Yes. We actually got some evidence of that last week.
A lot of what automakers, suppliers will do will be based on footprint in the U.S. And there are certain suppliers that are in a better position than others. One update which we thought illustrated this last week was GM.
They decided to take about 300,000 units of capacity and add that into U.S. plants, shifting away from Mexico, and spending about $4 billion to do that. So we think this is probably one of the first initiatives, big initiatives that is underway, but it will not be the last. And this is really in response to the policies that are encouraging pushing OEMs to reshore.
On the supplier side, we think as these OEMs bring capacity back into the U.S., certain suppliers with better footprint will serve to benefit over others. It's not entirely clear who these are necessarily, although we did get a comment from a seeding supplier called Adian that it has a lot of underutilized capacity in some American locations, and that they're seeing a lot more interest in utilizing that. So still a bit early, but you're starting to see the big picture of where footprint is lacking and needing to be boosted, and the suppliers we think will follow.
I want to park that element for a second. We definitely have to come back to the supply chain, but perhaps while we are talking about the bigger subjects here, there have been a large presence of Chinese OEMs and companies at our conference as well. What do you feel were their messages in the current environment?
Okay, and Chinese automakers give two clear messages. Number one, they want to maintain their global leadership in the self-driving technology with new chips and new algorithms. And second thing is that they actually still want for global, obviously, market expansion, and some actually will start to produce in the car in Europe.
In detail, for example, they actually just launched their in-house-made self-driving chips called Turing, and the computing power is more than 700 tubs each. In each vehicle, they will have three these kind of chips. As a result, they will have a 2.2 thousand tubs of computing power.
This is made very strong to support bigger models. In terms of the algorithm, we launched VLA, Vision Language Action Model, which can do online reinforced learning. This actually made them can be substantially improving their leadership in self-driving technology.
On the other hand, for obviously expansion, right now, every single automaker try to sell more car in obviously markets. The promoter who joined the conference actually said that they plan to increase their overseas sales number from 500,000 to 600,000 units in 2025 to 100,000 units in 2026. More importantly, they will start to produce vehicles in Europe in their global partners, Stelentis, Spain, France, with two smaller products and one middle-sized vehicle.
In the meeting, Europe actually can make them have games. So in conclusion, the Chinese automakers still want to go for what has been particular leadership, the self-driving, and actually still try for global expansion. Let's start here.
Was there any comment on the current demand in China? Is the situation changing? We've noticed that especially for the western car makers, they struggled there a little bit over the last two years.
For demand this year, actually it was quite good. If you've seen the first five months, the demand still increased double digit year over year. The reason why the demand has such high growth is because of the favorable policy.
Since August last year, the Chinese government launched the so-called vehicle trade-in subsidy, which basically give people to buy the car for new energy vehicle, given 20,000 RMB per unit subsidy. If you buy the IC, they got 15,000 RMB. This policy started from August last year, which actually continued to full year 2025, which means in the first eight months, they have a pretty low base to compare.
That is the reason they still have a double-digit growth. So far, auto sector performance is doing quite well. Thank you, Ben.
If I just quickly change hats here and now talk about the European OEMs and the takeaways that we had attending our conference as well, is that I think the most interesting element here is that Europe seems to be the pocket of growth and strength for these OEMs. That was a little bit of a region where people previously thought that hopes shouldn't be too high. Obviously, all the focus was on China and the good years for the West Sunday, especially the European and German OEMs.
Then also the U.S. once China started to get a little bit weaker, but Europe was kind of neglected at the same time. Now that we start to notice that in particular, what you just outlined, Ben, that the European OEMs actually don't participate in the growth that you see in China. Because of what we initially discussed, that isn't the tariff situation being what it is.
The Euro, we have saw struggling on both sides, but in Europe, it's actually running fairly well. We're noticing double-digit growth rates here on the order in take side, on the German OEMs in particular. This is true for ICE as it is for BEV, interestingly.
You also certainly see a bit of weakness in the Tesla numbers. I think it's a little bit too early to tell whether that is because of a changeover on the Model Y side. Edison, we can talk about that quickly hereafter, or if it is simply also reflecting that there's now a lot more stuff available from the other OEMs and certainly also reputation of Tesla with everything that Elon did so prominently in the US administration has suffered a bit in Europe for sure as well.
If we take all of that together, there's still a relatively cautious situation in China, the tariff situation being what it is in the US, where demand, by the way, still continues to be fairly decent for the Western OEMs as well on that side, and Europe being relatively strong. I think the takeaway regarding Q2 is that it's going to be a softer Q2, seasonally stronger than Q1, but the tariff impact already being stronger than what we've seen so far in the first quarter, and then also the Chinese situation simply not really improving. How much of the European growth is sustainably there?
We'll actually have to see. There's a lot of hopes, especially referring to Ben, what you just said on the technology side, on the new launches by BMW with Neue Klasse from September onwards and the MMA architecture of Mercedes also from September, October onwards, and with respect to them taking another leap at the Chinese OEMs and Tesla when it comes to software architecture, electronic architecture, and also autonomous driving features, we'll have to see how all of that plays out. All of these guys will display these new vehicle classes over the next few weeks at capital markets days and investor events, also around IAI conference that we're going to host in Munich in early September.
Edison, as we come back to the impacts that we just discussed about the US, what do you feel is the message in terms of likely impact on margins and cash for the industry of the conference? Similar to the sentiment, we've avoided some of the most draconian scenarios. People may recall, we had put out some research calling for anywhere from $8 billion to $10 billion of profit degradation.
I think it's safe to say we've avoided that and the administration has helped through various exclusions in some of the tariffs and also the credits given back to the US manufacturing. We've avoided those worst case scenarios. There will be a EBIT impact, a cash flow impact on the US OEMs, but for this year, at least, it's going to be fairly manageable.
Call it anywhere from a billion to maybe $3 billion. Going forward for the suppliers, actually, the impact will be far, far, far less because their plan to pass on costs to the OEM seems to be working at the moment. Now, could that change going down the line?
I think let's see, but at least for the foreseeable future, the supplier is actually relatively insulated. Basically, their performance will be based mainly on volume. Volume at the moment, probably cautiously optimistic, but obviously something we'll monitor.
Ben, what would you say is the takeaway in terms of financials for the latest meetings? Financials. Most of the automakers actually think the financials are increasing in their earnings.
For example, Xpeng reiterated they may be profitable for the first time in number four quarter this year. For DeepAuto, actually, they think that they will maintain a guidance from not making in the first quarter to be profitable in the second quarter. Basically, I think the volume growth and export expansion may have a sequential improvement in their financial capability.
The automotive industry is obviously very connected globally. I would argue having done this now for 16 years, it's the most complex supply chains in the world. The supply chain in automotive has been under a lot of stress, particularly in the Western world over the last few years.
The topic just recently also came up again about the rare earth material. Obviously, China has a very dominant position on that side. Potentially, semis.
We had that issue as well in the past. It might go up again when we think about all of these autonomous driving features and the continuous electrification that we see at the risk. Edison, do you think that is a risk at the moment, or can we park this for now and worry about others?
Arthur Wong Yeah. Another topic that we certainly brought up during the conference, I think the general attitude is it's super important. We all know it.
We'll stockpile if we can, but if something bad were to happen, it's going to hurt not just the auto industry, but many, many industries, some of which are very strategic to the sovereign efforts of the country. I don't think anything specific to call out. Interestingly, the administration had posted something I think the day before our day one.
Basically, they had said they'd come to agreement, and there were some rumblings about the licenses getting put out or given out by the government in China. I think it's one of these things where it's such a binary issue where if something bad were to happen, there's tremendous amount of pain that would be felt. Maybe we can defer to Bing in terms of the China perspective, but from the US side, there's just not much you can do.
There's no supply of that level, and there's not that much resourcing you can do to really mitigate it other than to come to some sort of trade agreement. I can certainly echo that from the European side as well. I think there's just not enough rare earth material.
There's almost none. So if the Chinese guys would indeed decide to not deliver this anymore, that would clearly be a major risk factor as well. Bing, what is your view on that at the moment?
I think that it's just a technical leverage in the negotiation. China don't want to hurt the global industry. They just want to use it as a method to give them more backing power during the global tariff discussion.
So then everybody actually will step down to offer better conditions to each other. I don't think that will really happen to stop or reduce the supply of rare earths. One thing that we typically discussed over the last few years at every conference, and was typically a very prominent theme, but kind of had gotten lost a little bit, at least among the US and especially also the European automakers, not so much the Chinese ones, is the latest developments on autonomous and electrification.
Obviously, this year, that was also, again, discussed. Both of you guys already referred to it, been even more so than Edison. What would you say, Edison, is the latest on that side?
And then perhaps, Ben, right afterwards, what do you think is the latest trends on that side? Totally. I actually think there's a tremendous amount of excitement, again, about autonomy, about autonomous driving in the US.
It's taking a much different flavor though than the first time around. Nowadays, it's much, much, much fewer relevant players. So essentially, Tesla, Waymo, and those two increasingly are believed to be the winners coming out of this.
Now, the approaches of how they get there are structurally extremely different. And the pace they're growing at or the pace they've deployed at currently is also very different. Waymo is doing hundreds of thousands of rides a week.
Tesla is supposed to launch the RoboTaxi on the 22nd. And so we'll see what the pace of deployment is from that. But I think the interest level and the belief that RoboTaxi is actually finally, after all these years, going to have some traction in the US is there.
On the personal autonomy side, I think it's definitely in the US been much slower than in China. I think everybody would agree with that. Is that going to change much outside of Tesla?
I don't think so, not least for the next year or two. It might even be several years before we really get to what's happening in China. But I think that's partly a cost issue.
And it's also a consumer issue, which Bing maybe touched upon, in that the consumer in the US just isn't as open, as experimental, perhaps, as in Asia and China. And so there's not this kind of rush to try to get all these new features out outside of probably Tesla and maybe a handful of OEMs. I'd also be a bit of a demographic issue, right?
Considering that the average age of a new car customer in China is significantly below that of the US and Europe. Bin, what do you say about that? I think for two reasons, I want to share number one.
In China, automaker actually not just regarding as the self-driving, just for auto industry, because they want to do humanoid robots as well. Because self-driving vehicles share the same algorithm as humanoid robotics, which called VLIA, as I mentioned earlier, Vision Language Action Model. They want to become leader in the physical AI stage.
If you recall, early this year, China has a big breakthrough in what we call text AI, with DeepSeek. Right now, they want to go for physical AI, with the combination for humanoid robots and the self-driving. So that is a very big start as well.
So that's number one I want to share. Automakers want to be a leader in the physical AI stage, not just self-driving. The second thing is that in China, there are so many suppliers who want to do self-driving, and they already realize door-to-door self-driving capability.
That's the reason most of the automakers can leverage the supplier's capability to deploy the self-driving. So if you recall, early this year, BYD declared they want to make all their vehicles to offer the self-driving features in February this year. Then every single automaker in China followed suit.
So that's the reason it's in the penetration for self-driving. We have a big jump because of this competition. Good.
This was a bit of a trip around the world. It was intended to be like that. We do run a global automotive conference, so we typically try to get companies there from the US, China, as well as Europe and wherever across the world where there's relevant businesses.
I hope that you found this interesting. If you'd like more information on what we've discussed, please do reach out to your Deutsche Bank sales representative. You've been listening to WhatsApp, and with that, I would say, Thank you very much, and thank you very much to everyone for listening.
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