VW Recalls – Initial Read-Through Thoughts to U.S. Auto Stocks
Over the weekend, it was reported by several media outlets (WSJ) that Volkswagen
AG (not covered by Citi) has stopped sale on U.S. diesel-powered cars after
allegedly evading U.S. diesel emissions testing using software. The software that
was allegedly used on about 482k U.S. VW diesel vehicles and made the cars
appear cleaner than they were during testing. The automaker has reportedly issued
an apology and is investigating. Our initial thoughts with respect to the read-through
to our U.S. covered auto stocks is as follows:
– (1) If this issue is contained to VW U.S. – VW commands a small ~2% U.S.
market share. Previous major recalls have not led to noticeably lasting market
share shifts though each recall situation is obviously different.
– (2) If this issue somehow spreads to VW on a Global Scale – Then we may
see some shift in global OEM share as VW group commands a strong ~25%
share in the EU market and a double-digit share in China. Note that at this point
we have no information to suggest that this issue goes beyond the U.S. For
information purposes, suppliers who are exposed to VW globally include
BorgWarner (~17%), Tower (~15%), Magna (~11%), Delphi (~10%), Lear (we est.
8-9%), Autoliv (~8%), Visteon (~3%) and Johnson Controls (listed as a Top 5
largest OEM customer). While exposed suppliers could be hurt on any global VW
market share shift (again, this scenario assumes the situation escalates to a
global scale, for which we have currently no information to suggest it will), these
suppliers would presumably gain some or all back with other OEMs they are
exposed to as most of these companies are well-diversified.
– (3) If this somehow hurts diesel demand – If any impact to diesel demand is
contained to the U.S., the impact to our covered companies would likely be fairly
small given modest diesel penetration in the U.S. If there’s somehow an impact
to diesel demand on a global scale, companies we cover with material exposure
to diesel engines include Delphi (~15% of revenue, though a good portion is
commercial vehicle/some aftermarket and light vehicle content likely made up
partially/wholly by other powertrains) and BorgWarner (diesel turbos = 15% of
backlog). Again, we have no information to suggest that industry diesel demand
is at risk from these unfolding events.