Head of Equity Strategy
Summary: The competition in battery electric vehicles continue to increase this year with Tesla introducing new price cuts in China on Friday and the Munich Motor Show over the weekend showing new exciting EV line-ups from BMW and Mercedes. For Tesla shareholders the key things to watch over the coming quarters are the operating margin and the global market share. In Europe, Ferrari will join the prestigious EURO STOXX 50 Index on 18 September and Novo Nordisk has become the most valuable European company.
The global car industry is in constant change these years with carmakers rushing to catch up to Tesla’s lead in battery electric vehicles. Recently price cuts in China have been the key focus and on Friday Tesla’s share price declined 5% on news that it had cut EV prices again for the second time in two weeks suggesting increased competition from local carmakers. China’s passenger car sales is still below the highs made in late 2017 and early 2018 suggesting the market has matured and the 30-40 year rapid growth in cars is over.
In addition to intense competition in China’s EV, the general competition is heating up reminded at the weekend Munich Motor Show. Here, Mercedes presented their almost in production concept CLA sedan which is rated to go more than 750 kilometers on a charge beating Tesla’s newest upgrade to its Model 3. BMW also introduced new EV models at the Munich Motor Show. Both Mercedes and BMW are bolstering their line-up in the luxury segment which for now has escaped the intense price war that has started in the volume segment where Tesla’s Model 3 is competing. For Tesla shareholders the key thing to watch over the coming quarters is the market share developments. Tesla had roughly 32% market share in battery electric vehicles in 2022 which it has maintained so far in 2023, but should this slip over the coming year then it could change the narrative around the stock.
Staying with the car theme, Qontigo (part of Deutsche Börse and owner of the EURO STOXX 50 Index) announced on Friday that Ferrari and Saint Gobain will be added to the EURO STOXX 50 Index effective 18 September 2023 while Vonovia and CRH will be deleted from the index. With Ferrari entering the most prestigious equity market benchmark marks the pinnacle of a fantastic growth journey since its IPO in 2016 with 12-month trailing revenue at €5.5bn up from €3.1bn in FY16 and 12-month trailing EBITDA at €2bn up from €874mn in FY16 highlighting the strong growth in the ultra-high-end of the luxury car market.
On Friday, Novo Nordisk became the most valuable European company stealing the limelight from ASML and LVMH that were the previous holders. Novo Nordisk’s market value is around €394bn in today’s session compared to LVMH at €390bn. The rise of Novo Nordisk over the previous two years riding the galloping demand for its obesity drug Wegovy has put health care companies, more specifically pharmaceuticals, to the top of European equity markets. Among the 10 most valuable companies in the STOXX 600 Index, four of those are now pharmaceutical companies (Novo Nordisk, Roche, Novartis, and AstraZeneca. As we have highlighted many times before the European equity market is more well-diversified than the US equity market and also have a higher exposure to defensive sectors that will do well in a downturn. It is not inconceivable that Novo Nordisk’s market value over time could eclipse that of many US technology companies as the company is fundamentally solving a far bigger problem that many technology companies. Novo Nordisk’s market value of $432bn is not far from Meta at $763bn (which was as low as $314bn at the end of 2022).
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
