Deutsche Bank-Global Semiconductors Auto Semi market tracker - Lower for ...-110547929

1 October 2024Deutsche BankResearch Europe Global North America Technology Semiconductors Industry Global Semiconductors Date Industry Update Auto Semi market tracker - Lower for longerRisks of a 2-year correction in Auto Semis risingFollowing 3 years of outstanding growth in Auto Semis at a ~26% 2020-23 CAGR, 2024 has been a correction year with limited growth, driven by weaker mix (less EVs, ADAS destocking) and inventory digestion (across tier 1s and OEMs, in our view). What has been remarkably stable in 2024, was pricing for Auto Semis with most major players commenting on relatively stable pricing this year, all likely helped by long-term agreements put into place during the supply crisis post Covid.With recent Auto datapoints (e.g. profit warnings and major restructuring across European OEMs) pointing to continued challenges for certain OEMs and the broader Auto industry into H2/24 2025, we now see a risk of Auto Semi pricing normalizing further which could put pressure on both revenue growth and margins for our companies. In addition, we continue to see scope for inventory destocking in the supply chain going into next year while powertrain mix is unlikely to improve meaningfully near-term on a global basis. We hence cut our industry growth forecast further to a >4% decline from -3% in 2024e, driven by our bottom-up model. For 2025, visibility remains low but we see clear scope for a more muted cyclical rebound based on our industry conversations with little/no growth possible for some companies.Semi content drivers have scope to improve, leaving us constructive on the space longer termWhile we are cautious on the Auto Semis outlook near term and into next year, we see scope for a positive development throughout 2025 and a return to more meaningful growth into H2. Potential supportive factors include: 1) improving EV momentum in Europe on the back of CO2 emission targets and increasing subsidies/tax benefits (e.g. in Germany), 2) continued healthy momentum for China EVs with exports likely increasing moderately despite tariffs - improving competition and ultimately EV affordability for consumers, 3) potential for additional EV subsidies/stimulus in the US following the presidential election (albeit with significant uncertainty and also downside risk associated to this), 4) ADAS destocking coming to an end while attach rates continue to grow at a healthy pace, 5) falling interest rates generally improving leasing affordability and consumer spending. We believe Auto Semis remain a structural growth story longer term despite a longer correction following an unprecedented 3-4 year boom phase. Our longer-term favorites in the space are companies which show a focus on cost Johannes SchallerResearch Analyst+49-69-910-31731Ross SeymoreResearch Analyst+1-415-617-3268Melissa WeathersResearch Analyst+1-212-250-2134DJ SebastianResearch Associate+1-415-262-2007Robert SandersResearch Analyst+44-20-754-58394Nicolas HermsResearch Analys