Cheap As Chips – Tactical Upside in a Structural Downturn

Research evidence excerpt

Cheap As Chips – Tactical Upside in a Structural Downturn

Idea

July 6, 2026 08:00 PM GMT

Morgan Stanley Europe S.E., Madrid Branch+MAutos & Shared Mobility | Europe Javier Martinez de Olcoz Cerdan

Equity Analyst

Cheap As Chips – Tactical Javier.Martinez.Olcoz@morganstanley.comMorgan Stanley & Co. International plc+ +34 9141-81289

Shaqeal A Kirunda

Equity AnalystUpside in a Structural Shaqeal.Kirunda@morganstanley.com +44 20 7425-0736

Matias Rodriguez Florez-Estrada

Research AssociateDownturn

Matias.Rodriguez@morganstanley.com +44 20 7425-1091

A barrage of headwinds has driven sustained underperformance Autos & Shared Mobility

Europe

for Auto OEMs. As market caps tread below industrial net cash Industry View In-Line

levels, we think bad news is increasingly becoming priced in. We

see tactical bounceback opportunities for post-profit warning

Exhibit 5 : Auto stocks have continued to

OEMs such as BMW. underperform the market in 2026. SXAP is now

The automotive sector could be approaching a cyclical trough. SXAP has close to 430, a level which has represented a

materially underperformed the broader European market as pressure has mounted historical support

from China weakness, US tariff risk, Chinese OEMs in Europe, Middle-East driven 800

inflation and higher-for-longer interest rates. The sector is now back near the 430 700

level, which has acted as a support level over the past decade, while earnings 600

expectations are approaching non-Covid lows. 500

Market capitalisations have sunk below net industrial cash levels. Several OEMs, 400

including BMW, VW and Renault, now trade at market caps below their industrial 300 SXAP 430-level

net cash, before even giving credit for financial services or truck assets. At the same 200