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Stock Strategist Industry Reports

China's Weakness Doesn't Faze European Auto Outlook

Morningstar's Rich Hilgert has already factored in lower demand, and his valuations are unchanged.

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We expect low-single-digit percentage declines in Chinese automobile demand for 2015 and 2016. Our long-term thesis on the growth potential of vehicle sales remains intact. We forecast annualized China sales growth in the mid-single-digit range, and as a result, our fair value estimates for the European automaker stocks are unchanged.

China law prohibits foreign auto manufacturers from operating in the country without an indigenous partner, with ownership of operations by foreign automobile companies limited to no more than 50%. As a result, weak Chinese auto demand and currency devaluation will sideswipe near-term profits for European automakers with regard to joint venture equity income.

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Richard Hilgert does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.