(Bloomberg) -- As worries pile up for Europe’s autos industry, short sellers have been choosing their targets.
Chief among them are Volvo Car AB and Porsche AG, which have both seen big increases in the percentage of shares out on loan — typically an indication of short interest — since the start of the year. Analysts say China has a lot to do with it, most specifically anxiety about the European Union’s tariffs on electric cars shipped from the Asian nation — and the potential for Beijing to retaliate.
“The short selling that you’ve seen in the last six months is directly related to China,” Harry Martin, an analyst at Bernstein said of Volvo Car. “There’s still quite a bit of uncertainty about whether some of those tariff costs will be passed on.”
Data from S&P Global Market Intelligence show that about 22% of Volvo Car’s freely traded shares was out on loan as of Wednesday, while for Porsche, the proportion was about 16%. That’s well above the levels for European peers including Volkswagen AG, Mercedes-Benz Group AG and BMW AG.
Some of the shares out on loan could also reflect arbitrage trading against the holding companies. However, data from Hazeltree, which provides treasury services to institutional investors, including hedge funds, confirms there’s been an increase in “short crowdedness” in Volvo Car and Porsche over the past month.
“I don’t think it is my job to review the stock market,” Volvo Car Chief Financial Officer Johan Ekdahl said in an interview. “We need to do what we think is the strategically best long-term for the company. I am fully convinced that will also create value for the shareholders.”
Among European automobile companies, Geely-owned Volvo Car is the most exposed to higher tariffs. Its EX30 electric sport utility vehicle is made in China, though the Swedish-listed company will start producing the compact SUVs at its plant in Ghent, Belgium next year. The question is whether it can still manufacture the vehicles at the same margin levels as in China, Bernstein’s Martin said.
The EU tariffs are meant to shield an important industry from Chinese rivals that enjoy structural advantages in several areas. But they have raised the threat of similar levies from Beijing.
Some Chinese experts have proposed increasing tariffs on imported cars with large engines and argued that such duties are in line with World Trade Organization rules, He Yadong, spokesman for China’s Ministry of Commerce, said at a briefing last week. That could hit the likes of Porsche, alongside Mercedes and BMW.
Adrien Brasey, an analyst at Alphavalue, singled out Porsche as particularly vulnerable to Chinese retaliation, including via higher tax, “given that all of its vehicles are manufactured in Europe.”
“This concern will weigh on Porsche’s stock price,” Brasey predicted. He is one of only two analysts with a sell-equivalent rating on the stock.
The trade concerns come at a time when European carmakers are grappling with slowing demand at home and abroad. Volkswagen-controlled Porsche for instance, faces supply chain issues, weak demand in China and high costs linked to several model changeovers. The company has been toning down its ambitions for electric-vehicle sales amid lower-than-expected momentum for plug-in models in Europe and China.
And the bearish sentiment isn’t just limited to short sellers. Analysts at BNP Paribas Exane downgraded their recommendation on Volvo Car to underperform from neutral this week, predicting things are about to get tougher for carmakers due to Chinese competition and their reliance on emerging markets for growth. Goldman Sachs Group Inc. is also downbeat on the stock.
Volvo Car on Wednesday abandoned a target to only sell electric cars by 2030. A day later, it slightly scaled back its outlook as rising tariffs hurt some of its models made in China.
“We continue to see better opportunities elsewhere and remain sell-rated,” Goldman Sachs analyst George Galliers wrote in a note to clients on Friday.
Volvo Car and Porsche are among the ten most shorted stocks in Europe’s Stoxx 600 Index and their shares have slid sharply this year. But they aren’t the only European automobile manufacturers attracting speculative bets. Shares out on loan amounted to about 17% of Aston Martin Lagonda Global Holdings Plc’s free float, according to latest S&P data.
However, any short selling is likely linked to concerns about the company’s balance sheet, rather than tariff concerns, according to Bernstein’s Martin. The London-listed firm, whose shares are down roughly 30% so far this year, doesn’t yet make any fully electric vehicles.
Representatives for Porsche and Aston Martin declined to comment.
--With assistance from Monica Raymunt, Jamie Nimmo, Michael Msika and Rafaela Lindeberg.
(Updates with Volvo Car CFO comment in sixth paragraph, analyst commentary in eighth below chart.)
©2024 Bloomberg L.P.