European carmakers

If first-half delivery figures are a reliable guide, Europe’s carmakers appear more than roadworthy, even if rising raw material costs could change that in the second half. Volkswagen leads the pack – not because it is the region’s biggest automaker by most measures, but because of its emerging market (read Asia) focus. China, where the China Association of Automobile Manufacturers reported a 6.2 per cent increase in car deliveries to 1.1m last month, is the place to be.

Sales of Volkswagen models rose by 12 per cent in the first six months. But nearly 90 per cent of its Asian deliveries were to China, its largest single market, where it sold 853,000 vehicles. By contrast, it delivered only 302,000 cars in Germany. China remains a priority: on top of VW’s existing plan to invest €51.6bn in cars in the next 5 years, it has earmarked a further €10.6bn for its Chinese joint ventures, including that with FAW.
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Peugeot group of France, for its part, could increase capacity at its joint venture withDongfeng in China, where its first-half sales were 10 per cent higher than last year (while its European car sales dropped by 4 per cent). Its high-value model range at least distinguishes it from French rival Renault, the sector laggard. Although well-entrenched in central and eastern Europe, Renault sells relatively few cars in China (a market covered by its partner, Nissan). The Japanese automaker, which expects global sales to rise by almost 10 per cent despite the March earthquake, looks the better emerging market bet.

VW’s share price reflects its Asian orientation. Trading on a prospective full-year earnings multiple of 7.7 times it has Peugeot (5.25) and Renault (6) in the rear-view mirror. However, as it still lags behind premium carmakers such asBMW (sales to China 61 per cent higher) and Mercedes-Benz (52 per cent), VW’s multiple may well have capacity to expand further.