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German Auto Stocks Strong After Indecisive Election Result

German auto stocks spurted ahead after the German general election Sunday brought a narrow but inconclusive win for the left of center Social Democrats (SPD) over the right of center Christian Democrats (CDU/CSU).

The results showed the Greens and the left-wing Die Linke party doing worse than expected, suggested any coalition that is formed won’t be able to push for extreme climate action that might have hurt auto companies.

Volkswagen shares jumped 2.5% in morning trading to €273.60, BMW advanced 1.3% to €86.62 and Mercedes-parent Daimler rose 2% to €75.76. The European autos STOXX 600 index, in contrast, rose a fractional 0.3%.

Latest official results showed the SPD won 206 seats with 25.7% of the vote and the CDU/CSU of retiring chancellor Angela Merkel just behind with 196 seats and 24.1%. The Green Party won 118 seats (14.8%), the Free Democrats (FDP) 92 seats (11.5%) and the right-wing conservative AfD 83 seats (10.3%). Die Linke polled under 5%, so doesn’t qualify for any seats.  

Negotiations will now begin to form a coalition government and it could take up to 6 months to reach agreement. Meanwhile, Chancellor Merkel will remain in place.

Investment bank UBS said the result was tighter than expected.

“The German election delivered a result that was much closer than opinion polls had predicted, with the SPD winning the most votes, just ahead of the CDU/CSU bloc by a very small margin. The Green party polled worse than expected as did the left-wing Die Linke party, making a coalition of left-leaning parties unviable,” UBS said in a report.

Leaders of the SPD and CSU have said they will try and form a government. The Greens and the FDP have both supported green policies and want to improve Germany’s digitization.

UBS reckons the CDU/CSU might win out despite coming 2nd in the election. (the centre-right Christian-democratic political alliance includes two political parties in Germany: the Christian Democratic Union of Germany and the Christian Social Union in Bavaria.)

“In our view, predicting who will emerge as chancellor is highly uncertain. While the SPD won the most votes, the wind appears to be back in the sails of the CDU/CSU after a poor campaign, leaving the situation too close to call,” UBS said.

“For investors, we believe key areas to focus on are climate change and digitalization as these are areas where all parties seem to agree on the need for greater investment. Questions over fiscal policy will be resolved in due course, but we expect some easing. However, the need to compromise in the coalition talks will limit what can be achieved,” UBS said.

Election issues facing the auto industry included setting a date to end the sale of internal combustion engines, a schedule for net zero carbon dioxide emissions, and carbon taxes. The Green Party wanted to impose a speed-limits on some of Germany’s unlimited intercity highways.

The main points contending parties were supporting concerning the auto industry were –

CDU/CSU – wants technology, not politics to lead the race to curb CO2 (carbon dioxide) emissions (EU rules favor battery electric), doesn’t want to set a date to ban sales of ICE cars, more highway building to prevent traffic jams, supports the development of synthetic fuels and hydrogen.

SPD – Continue support for tax-payer money to buy electric cars, subsidize charging networks, no end date for ICE sales, end of unlimited speed highways.

Green – Stop making ICE cars by 2030, end unlimited speed, no more new highways, spend €100 billion ($117 billion) on rail.

Free Democrat Party (FDP–conservative) – Opposes end to unlimited speed, opposes European Union (EU) CO2 targets for 2030, end subsidies for new electric vehicles now reaching €9,000 ($10,500) in some cases.

Director of Germany’s Center for Automotive Research Professor Ferdinand Dudenhoeffer said in theory a win by the CDU would be best for the auto industry because this would leave more time for transformation from ICE to electric, while the party also wants to water down some EU CO2 regulations. But Dudenhoeffer said if Germany’s auto industry speeds up its embrace of electric cars it would be able to compete sooner with the leader Tesla
TSLA
, and he wants a quicker route to autonomous cars and the IT framework that goes with it.

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