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Investing.com -- Jefferies has initiated coverage on four European auto suppliers, assigning Buy ratings to Autoliv (NYSE:ALV) and Forvia (EPA:FRVIA), and Hold ratings to Schaeffler (NSE:SCHE) and Valeo (EPA:VLOF).
The broker sees selective opportunities despite structural and cyclical challenges in the sector, including high R&D costs, execution risks, and exposure to Chinese competition.
"Suppliers have re-rated as tariff uncertainty has eased, but diversified T1 suppliers still trade at discounts to US/Asian peers & well below historical levels," analysts led by Michael Aspinall said in a note.
They do not expect sector margins to return to pre-Covid levels in the near term.
The Buy rating on FORVIA reflects a “transformation towards a simpler, higher-growth business with a reduced debt overhang following upcoming disposals," analysts wrote.
Jefferies also favors Autoliv for its scale advantages and “innovation leadership,” noting that the company is less exposed to electric vehicle transition risks and pressure from Chinese rivals.
Among original equipment manufacturers (OEMs), Jefferies prefers Volkswagen (ETR:VOWG_p) and Stellantis (NYSE:STLA).
The former is favored for its restructuring potential, while Stellantis offers a “product-led cyclical turnaround in NA and upcoming strategic decisions in Europe.”
Truck OEMs are seen in the early stages of an up-cycle, with Daimler (OTC:MBGAF) Truck (ETR:DTGGe) as the preferred name due to a positive U.S. freight backdrop and restructuring at Mercedes Benz Group (ETR:MBGn).
"Our view is that the freight market is supply driven & lower supply/new truck production in ’25 will ensure higher growth in ’26," the analysts continued.
"We expect Europe orders to continue to show strength and expect US orders will be weak through summer, before pent up demand is released late in the year."
In the tyre segment, Jefferies picked Michelin (EPA:MICP) as the top name, highlighting its underperformance relative to peers and upside potential from both cyclical and regulatory drivers.
“Michelin has consistently delivered stronger EPS growth in an Ag up-cycle (expected in ’26) and will benefit from regulatory tailwinds in the U.S. and Europe," the note states.
While investor sentiment has improved in parts of the autos complex, Jefferies cautions that excess capacity in Europe and ongoing policy risks still weigh on the outlook.