Audi to be the next European Model Cycle play
* Model cycles matter – Model Cycles are a key element in Auto investing particularly for luxury brands. In this note, we
showcase our comprehensive annual review of new model launches through to 2017 to assess which OEM has the edge.
* MBC – MBC was the model story of 2014 but we believe that is well appreciated with it trading on c. 10x P/E vs. 7x for
VW on 15E. In general with MBC having renewed its C Class and expanded its SUV range there is less to say about
model renewal than there was a one year ago (even with a new E in 16E) and less of an investment story too, in our view.
* Audi advances – We see Audi (40% of VW group EBIT) and by extension VW as the next model cycle play in the sector
as Daimler’s star fades. Audi should have a younger fleet age than MBC’s by end 16E and by end 17E we see nearly its
entire fleet refreshed. As Daimler has shown, investors typically play this theme one year in advance reinforcing our VW
Buy case which we think gathers momentum into 2015.
* BMW Mix may improve – Even BMW which had been thought to be an uninteresting model cycle story has exciting mix
enhancing rollouts ahead through an extended SUV range and crucially a new 7 series (10% of EBIT we estimate) in 15E.
Indeed, we are more impressed by BMW than we were six months ago.
* JLR’s expansion – We see JLR as the biggest challenge to the German OEMs as it expands its Sedan offering with an
all new Jaguar XE (3 Series rival) in 2015 and next gen XF (5 series rival) in 2016. JLR also looks set to expand in SUVs.
* RNO cost savings – We think Model cycles matter less for RNO (Focus List) than any other European peer. Unlike Fiat
and PSA, it has few pretensions to enter the luxury end where model cycles matter more. Indeed, we think its model
cycles are more about cost management and see the likely 2015 C&D segment renewal as key to improved profitability.
* PSA’s sensible rationalization – We think PSA has learnt the lesson of RNO that fewer targeted models are more likely
to be a success than a broad range. PSA is going the opposite way to Fiat cutting models to 26 in 2022 on 2 platforms
from 45 on 7 currently. We still have concerns about the move upscale as we worry some peers are doing the same.
* Fiat’s risky proliferation – Fiat’s model age is finally coming down yet it is following a different path to PSA and Renault
by greatly expanding its range, this has inherent risks we believe in terms of capex and debt.