(fixes sentence in 10th para to say "much cheaper" rather than
"still much cheap")
* European auto and auto parts index hits record high
* Sector has gained 33% in one year
* BofA expects light vehicles sales to increase by 10%
* Europe auto sector trades at 7x forward earnings, U.S. 42x
LONDON, Jan 5 (Reuters) - European automobile stocks rose
more than 2% to a record high on Wednesday as investors turned
increasingly bullish on the sector on growing expectations for
stronger car sales in 2022.
Investors' interest in car stocks across the region has
ignited over the past few months with Europe's auto and auto
parts index up more than 8% this week alone, surpassing
a previous record high in November.
The sector has gained 33% in a year, outperforming the
pan-European index, which has gained 23% over the same
After carmakers had to deal with high inventories over the
past two years caused by a pandemic-induced slowdown in sales,
things have started to turn around for the sector despite a 2021
shortage in chip supply, which forced some to cut production.
Shares in Germany's BMW rose 2.3% after the group
said it achieved record sales of over 2.2 million vehicles from
its BMW brand in 2021, outstripping 2019 levels.
BofA expects European light vehicle production and sales to
increase by 10% this year, with Daimler's
Mercedes-Benz, Renault and Stellantis
leading the pack with projected growth rates at around 20%.
"We argue there is still substantial catch-up potential left
and we remain positive on light vehicle sales growth in FY22,"
said Horst Schneider, research analyst at BofA.
ROOM FOR GROWTH
Higher car prices in 2021 offset an increase in costs in the
second half of the year, analysts said. Yet European car stocks
are much cheaper than U.S. peers.
Europe's auto sector is trading at just seven times forward
earnings. That compares to 16.8 times for the STOXX 600
benchmark and a whopping 42.4 times for the U.S. auto sector
. U.S. carmaker Tesla's market capitalization
alone is more than twice the size of the entire STOXX 600 index.
"Autos are very cheap, but profitability is strong given
excellent price mix, even on lower volumes, and chip shortages
should ease," said Emmanuel Cau, equity strategist at Barclays.
Shares in Renault climbed 4.4% as U.S. chipmaker Qualcomm
said it had struck deals to supply the French carmaker
and Volvo Cars.
Stellantis shares rose 3.4% as the Milan-listed company
partnered with Amazon.com to develop cars and trucks
with Amazon software in the dashboards and deploy electric vans
on the online retail giant's delivery network.
Daimler's shares also rose 3% despite reports the company
informed owners of its luxury cars of a technical defect that
could spark a fire.
Not everyone is bullish, JP Morgan cut its production growth
forecast for European light vehicles to 4% and 6% for 2022 and
2023 respectively, citing consumers' hesitancy towards buying
internal combustion engines, postponing purchases of electric
vehicles and the chips shortage.
But with demand still outstripping supply amid ongoing
shortages of raw materials, the auto and auto parts space is
poised for growth, according to Barclays.
(Reporting by Joice Alves
Editing by Mark Potter)