Morgan Stanley upgrades Renault, weighs Volkswagen restructuring plan

Daiwa analysts said China’s auto sales this year are likely to fall 21%, which they described as the largest year-on-year decline in the sector over the past two decades. They cited market concerns over the government’s replacement subsidy, an increase in China’s NEV purchase tax, and slower product launches for 2026 as the main drivers weighing on sales, according to a note carried by Dow Jones Newswires.

The replacement subsidy will likely be phased out and could put downward pressure on overall auto sales in China this year and over the next two years, the Daiwa analysts wrote. They projected that China’s auto sales will record an annual decline of 2% in both 2027 and 2028.

The China slowdown is feeding into global weakness. Daiwa analyst Kelvin Lau wrote in a separate note that global auto sales will likely decline by 4% this year due to weakness in China, with demand remaining sluggish next year and weakness persisting through 2029.

Lau noted that an increasing number of automakers are using their current technology and capital to develop new segments such as humanoid robots to maintain long-term profitability. Among the automakers, Daiwa’s top picks under the transformation theme are BYD, Hyundai Motor, and XPeng. XPeng plans to ultimately sell part of its humanoid robot business in the coming 18 months while remaining a controlling shareholder, according to the note.

Morgan Stanley analysts took a different tack on European automakers. On Volkswagen, they described the company’s restructuring plan as a potential game changer but said the assumptions and targets appear demanding. Executing the plan — reducing capacity and cost while adding flexibility and speed to market — would make the analysts more positive on the German carmaker.

“We see many low hanging fruit and think that VW has room to fund a good part of that restructuring via nonstrategic asset disposals,” Morgan Stanley wrote. Some of the plan depends on what the analysts characterized as “potentially bumpy” negotiations with unions, which could generate positive and negative news flow in the second half. Volkswagen shares closed at 81.46 euros.

On Renault, Morgan Stanley said the French carmaker’s exposure to a strong European market makes it the biggest beneficiary of potential regulatory protection. The bank wrote that Renault is unlikely to sustain the market share growth it saw last year amid competition with Chinese carmakers but that does not rule out positive volume growth, because Renault is the most exposed company to European pent-up demand, which has further room to recover.

Morgan Stanley upgraded Renault to equalweight from underweight and raised its price target to 31 euros from 25 euros. Renault shares closed at 29.36 euros.

Chinese competition remains a long-term concern, but it brings incentives to adjust costs and capacity, Morgan Stanley wrote.