With the race for the pole position among the automakers heating up, Berenberg identified Ferrari NV (BIT: RACE) as its only Buy recommendation, as it believes the market fails to discount margin upside from better pricing as well as strong cash-flow generation.

Sector Initiated With Negative View

Analyst Haissl initiated coverage of the European and U.S. automotive OEMs with a negative view, given that pure cycle worries are just the tip of the iceberg. The analyst believes increased leverage and stickier capex leave little upside for shareholders in the coming years.

European Market To Decline

Berenberg expects the European market to decline 2 percent and 4 percent, respectively, in 2017 and 2018, as the strong growth seen currently is demand pulled forward due to factors such as increased household leverage, strong fleet development and government incentives. However, the firm noted that structural challenges such as population growth or car ownership remain in place.

Trump's Potential Policy Path Clouded

The firm, however, is not very clear on what a Trump era has in store for these companies, as the net effect of the potential policy paths remains clouded. The firm sees looser emission norms reducing cost pressure but trade barriers having an adverse impact. That said, a bigger risk, according to the firm, is an increase in interest rates.

From a regulatory perspective, the firm sees a risk that capital rules are overlooking leading risks, as frameworks are ill suited to capture the full risk in less traditional credit products.

The firm also said stickier investments, the risk of higher pension contributions, pressure to participate in opportunistic investments in mobility services and potential capital contributions into financial services could put meaningful pressure on cash flows. In the eventuality of even a modest slowdown, the firm sees shareholder returns being significantly lower than expected.

On emission norms, the firm noted that the political leverage of the automotive industry greatly influences emission rules. The firm also believes reaching CO2 targets could be easier than expected, with costs being lower.

Offering its views on new car sales in major markets, the firm said the torrid pace of car sales growth in Europe and the United States is unlikely to continue, as sales have reached peak levels.

Germany

• Sales expected to reach population-adjusted peak by the year end, although numbers are likely to be 2 percent lower than the previous peak n 2006.
• Underlying demand remains weak.

France

• Favorable product mix, with private demand accounting for over 50 percent of sales.
• Growth outlook is still muted.

U.K.

• U.K. production expected to fall 5–7 percent in 2017–18, as weak underlying growth emerges after temporary financial boosts and record high financing penetration.

Spain

• Offers little support to growth, given the structurally challenged domestic economy with high unemployment levels.
• Following the ending of the scrappage scheme in July 2016, about 5–10 percent decline in predicted for 2017–18.

Italy

• Only market to see meaningful upside in the near term, helped by healthy market mix, low interest rates and an ongoing recovery in replacement demand.

United States

• U.S. new car sales to decline 4–5 percent in 2016–17 after having peaked in 2016.
• Car ownership per capita has recovered to pre-crisis levels and a stretched financing market leaves little room for further upside.

Ratings And Price Targets

At Time Of Writing

• Ferrari shares were up 0.69 percent at $50.80.
• Fiat Chrysler was adding 0.66 percent at $7.59.
• Ford was up 0.30 percent to $11.82.
• Shares of General Motors were rallying 1.32 percent to $33.45.
• Tesla was advancing 1.80 percent to $187.84.