UBS lifts European auto stock targets as tariff impact eases

Investing.com -- UBS has raised its price targets and earnings forecasts for several European auto stocks, citing a lower-than-expected hit from U.S. tariffs and improved global vehicle production trends.

In a note dated Wednesday, UBS increased its 2025 global light vehicle production (LVP) forecast by 3% to 90.4 million units and its 2026 estimate by 2% to 90.9 million. 

The upgrade reflects improved volume trends in the U.S. and China, where exemptions and limited price hikes have reduced the expected impact of tariffs.

BMW (ETR:BMWG) received the largest price target increase, to €90 from €78, a 15% jump. UBS expects the company to report a Q2 auto EBIT margin of 5%, meeting the lower end of its full-year 5-7% guidance despite ongoing trade tensions. 

UBS forecasts BMW’s 2025 automotive EBIT at €6.4 billion with an industrial free cash flow of €4.8 billion.

Volkswagen (ETR:VOWG_p)’s price target was raised to €92 from €84, while Stellantis (NYSE:STLA) saw an increase to €9.7 from €8.8. Forvia’s target rose from €6.5 to €9 following significant upgrades to earnings estimates.

Earnings per share revisions included a 6% increase for BMW’s 2025 EPS to €9.86 and a 16% rise in its 2027 EPS to €12.61. 

Stellantis’ EPS forecast for 2025 was raised by 22%, while Forvia’s 2025 estimate moved from a €0.25 loss to a €0.10 profit.

Among OEMs, guidance adjustments are expected in Q2 results. UBS projects EBIT margin guidance cuts of 150–200 basis points at Mercedes-Benz (OTC:MBGAF), Porsche AG, Stellantis, and Volkswagen. Renault (EPA:RENA) is expected to confirm its >7% EBIT margin, excluding a previously factored CO₂ penalty.

For suppliers, UBS anticipates Q2 prints will align with or exceed expectations due to stronger global volumes. 

However, it warns that cost pressures from U.S. content sourcing and price negotiations with OEMs may limit further upside. 

Continental and Forvia are expected to deliver solid Q2 results, while Brembo (BIT:BRBI) and OPmobility could show weaker performance.

Tire manufacturers face near-term challenges. UBS Evidence Lab data shows Chinese imports 20-40% above average and retail prices dropping more than 10% quarter-on-quarter. As a result, UBS expects up to 5% downgrades for companies like Michelin (EPA:MICP) and Pirelli.

Despite no resolution to the U.S. tariff situation, UBS said the tariff burden is smaller than initially feared, removing a key overhang for investors. 

The brokerage continues to favor BMW as its top pick among European automakers due to its product cycle and improving cash flow profile.