European Autos 2016 PDF

December 16, 2015
Europe: Automobiles
Equity Research
Autos 2016: Trading the sector; reiterate CL-Buy on FCA and Continental
Triad volume growth all but over
Need for scale can force consolidation
While we see 2016 global car sales growth

accelerating, the geographic mix looks set to be
weak. We forecast Triad volumes barely growing
(+0.6%) in 2016 and 2017 and declining thereafter.
Meanwhile, we see emerging markets that
collapsed in 2015 stabilising and Chinas
resurgence as temporary.
In an investment-hungry sector already struggling

to earn its cost of capital, we see an industrial
logic to consolidation; we believe it is a process
waiting to be set in motion.
Suppliers improving ROIC, OEMs stand still

We see OEM returns remaining flat over 2015-20E
at 9.6%, with all the sectors ROIC expansion
driven by the suppliers, which we expect to grow
returns from 13.4% in 2015 to 15.5% in 2020 on
improving margins and asset turns.
FCA and Conti CL-Buys

Reflecting our structural views, our top picks
going into 2016 are FCA (CL-Buy) and Continental
(CL-Buy). We see FCA as best placed to benefit
from industry consolidation, and we see Conti as a
key beneficiary of auto megatrends, with global
exposure to powertrain, emission, safety,
infotainment and connectivity trends.
RATINGS AND PRICE TARGETS

Rating
Autoliv
BMW
CNHI
CNHI (US)
Continental
Daimler
Faurecia
FCA
FCA (US)
GKN
Hella
Michelin
Nokian
Porsche **
PSA
Renault
Valeo
Volvo
VW
* Conviction List
Neutral
SELL
Neutral
Neutral
BUY*
BUY
BUY
BUY*
BUY*
BUY
BUY
Neutral
Neutral
SELL
BUY
Neutral
BUY
Neutral
SELL
US$
US$
US$
GBp
Skr
12M
PT
Upside
130
95
7.3
8.0
260
87
41.7
18.0
19.6
327
42.9
94
36.2
47
18.8
97
158
84
129
6%
1%
12%
13%
21%
17%
24%
44%
44%
15%
18%
8%
10%
-3%
19%
10%
18%
9%
0%
Old 12M
PT
119
77
6.5
7.2
244
86
36.5
15.9
17.7
37.3
98
33.6
36
17.8
82
150
93
100
** NAV methodology
Source: Goldman Sachs Global Investment Research. Priced December

11, 2015.
Upgrade Hella to Buy, reinstate GKN at Buy

Premium for suppliers returns justified
We believe the market questions the sustainability
of OEM returns, discounting regulatory, China,
and business model risks. For the suppliers, in
contrast, we see the market ascribing a premium
as warranted and sustainable in an industrials
space where growth is scarce.
Stefan Burgstaller
+44(20)7552-5784 stefan.burgstaller@gs.com Goldman Sachs International
Ashik Kurian
+44(20)7051-3084 ashik.kurian@gs.com Goldman Sachs International
Demian Flowers
+44(20)7552-9374 demian.flowers@gs.com Goldman Sachs International
Gungun Verma
(212) 934-2029 gungun.verma@gs.com Goldman Sachs India SPL
The Goldman Sachs Group, Inc.
We upgrade Hella to Buy on strong organic

growth (albeit amid a pause in margin expansion)
and reinstate our rating on GKN at Buy on
valuation combined with a resumption of growth
in 2016E. We introduce 2020E estimates across
our coverage.
Goldman Sachs does and seeks to do business with companies

covered in its research reports. As a result, investors should be aware
that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a
single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure
Appendix, or go to www.gs.com/research/hedge.html. Analysts
employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Global Investment Research
December 16, 2015
Europe: Automobiles
Our sector in six charts

Exhibit 1: EU Autos has outperformed the market
over the past year
Exhibit 2: on relative earnings upgrades
Exhibit 3: Valuation remains attractive
Performance vs. EPS revision
Autos P/E relative to market
12-month performance
-30%
-20%
-10%
Travel & Leis

Fin Svs
Food
Media Tech
Real Estate
Autos
HC
Stoxx Chemicals TelcosPHHG
Ins Retail
0%
Banks
0%Ind Gds & Svs25%Const & Mat 50%
Utilities
20%
100%
80%
60%
40%
-20%
20%
Oil
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2000
2003
0%
-40%
Basic Res
2002
-25%
120%
2001
-50%
140%
40%
12m fwd. EPS revision
Fin Svs
PHHG
Travel & Leis
Const & Mat
Food
Tech
Real Estate
Retail
Ins
Media
HC
Ind Gds & Svs
Telcos
Chemicals
Autos
Stoxx
Oil
Banks
Utilities
Basic Res
-60%
0%
10%
20%
12-month performance
30%
Source: Datastream.
Exhibit 4: Overarching growth trend slowing

Global auto sales (units = mn, growth = % yoy)
15%
80
10%
Source: Datastream.
Exhibit 5: Market already paying for 2016E

returns
Exhibit 6: FCA, Continental are our top picks
12%
8%
5%
Upside/downside to 12-month price target

50%
40%
10%
60
Median
Source: Datastream.
Sector ROIC vs. share-price implied ROIC

100
Autos P/E rel to market P/E
30%
6%
20%
4%
0%
10%
2%
Source: IHS Global Insight, Company data, Goldman Sachs Global

Investment Research.
Goldman Sachs Global Investment Research
Sector ROIC
Implied ROIC
Source: Company data, Goldman Sachs Global Investment

Research.
Porsche
VW
BMW
Autoliv
Michelin
Volvo
Renault
Nokian
GKN
Hella
Valeo
PSA
Daimler
-10%
CNH Ind (US)
Global growth (RHS)
0%
FCA
2020E
2019E
2018E
2017E
2016E
2015E
RoW
0%
Continental
Triad (US, EU, JP)
2014
2013
2012
2011
2010
-5%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
20
Faurecia
40

Research.
December 16, 2015
Europe: Automobiles
Table of contents
Our sector in six charts
European autos in 2016: The state of play
Our key action ideas
Looking back to see forward: European Autos modestly outperformed in 2015
12
Global growth accelerating, but Triad growth looks all but over
13
Returns drive valuation: Our ROIC valuation framework explained
14
BMW (BMWG.DE): Growth slowing, ROIC stalling; reiterate Sell
21
Daimler (DAIGn.DE): Consistent execution flowing into free cash; reiterate Buy
25
Fiat Chrysler (FCHA.MI): Delivering on growth; plus substantial optionality; CL-Buy
29
Peugeot (PEUP.PA): Steady operational progress with strategic optionality; Buy
33
Volkswagen (VOWG_p.DE): Many questions unanswered on the road to redemption; Sell
37
Porsche (PSHG_p.DE): Reflecting our negative VW view; Sell
41
Continental (CONG.DE): Improving growth outlook to drive re-rating; reiterate CL-Buy
43
Faurecia (EPED.PA): Confident on 2016 targets; see scope for re-rating: Reiterate Buy
47
GKN (GKN.L): Expect growth to resume in 2016; see upside post derating; reinstate at Buy
51
Hella (HLE.DE): Strong organic growth amid pause in margin expansion; up to Buy
55
Valeo (VLOF.PA): Best-in-class growth set to continue; reiterate Buy
59
Estimate changes and key risks to our price targets
66
Valuation multiples
69
GS versus consensus
70
Dividend and FCF yield
71
Disclosure Appendix
72
The prices in the body of this report are based on the market close of December 11, 2015, unless otherwise stated.
December 16, 2015
Europe: Automobiles
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December 16, 2015
Europe: Automobiles
European autos in 2016: The state of play

2015 saw the rise and fall and resurgence of the SXAP, within which share price performance dispersion was broad, with
Nokian and the French OEMs rising, and VW and Porsche SE lagging. Looking forward, 2016 will likely see global volume
growth accelerating, but the Triad market growth story appears done. We believe ROIC improvement will be driven by
suppliers rather than OEMs, and that investors will remain willing to pay a premium for supplier organic growth. In a sector
compelled to invest in profound change, we think ultimately consolidation will be necessary.
The SXAP in 2015: Rise and fall and resurgence

In 2015, the European Autos sector (SXAP) rose 9%, mildly outperforming the European market (Stoxx +4%), although it has been
an eventful journey: euro-fueled optimism characterised the first three months (+39%, Jan-Mar) on strong EU car sales, a
weakening euro, and ECB asset purchases. There followed a pronounced decline on China and EM concerns, where the sector lost
over a third of its value (-35%, six months; Apr-Sep) culminating in VWs emissions scandal. Since the trough on September 29, the
sector has seen mean reversion (+21%, two months; Oct-ytd) helped by VW up +35% on lower-than-initially-expected recall and
repair costs, and support has come from rebounding China car sales on incentives and a supportive 3Q results season.
Broad dispersion within the sector

Within the SXAP story there is broad dispersion: Nokian shares are up 62% ytd as growth and margin pressure concerns have
eased. In the OEM space, the best performers have been those driven by the European recovery: namely, volume players PSA
(+55%) and Renault (+47%). On the negative side, CNHI (-3%) and GKN (-17%) have both been penalised for their exposure to weak
agricultural equipment markets, as have Volvo (-9%) on heavy truck end-market concerns, and VW pref shares (-31%) and Porsche
SE (-28%) weathering VWs emissions scandal.
Global growth accelerating, but Triad growth appears all but over
The good news is that, in 2016, we believe global car sales can grow faster than they did in 2015, with volume growth accelerating
to 4.8% in 2016E (up from +2.2% in 2015). The geographic mix will not likely look so positive: collapsing emerging markets appear
set to stabilise. In 2015, Russia and Brazil were together responsible for the loss of ~1.5 mn units (i.e., 180 bp of global growth),
whereas this year we see another (lesser) Brazil decline of 15% and Russia back to growth of 5%. We see India volume growth
accelerating to 15%. Chinas resurgence will likely be temporary. Fresh tax incentives (with the potential for additional
rural-focused incentives to follow) could support 2016 volumes (+15%), but by effectively borrowing demand from 2017 (-5%).
When it comes to the Triad markets of US, Japan and Western Europe (from which the majority of global OEM EBIT still originates),
the growth outlook is bleaker. We forecast Triad volumes barely growing (+0.6%) in 2016 and 2017 and declining thereafter, with
the US close to peak and Western Europe growth easing substantially on tougher comps (2016 +1.6%).
December 16, 2015
Europe: Automobiles
Suppliers to drive ROIC improvement while OEMs set to stand still

For the autos sector as a whole, the scope for return on capital (ROIC) appears modest (+60 bp 2015-20E on our estimates). OEM
returns will likely remain flat over this period at 9.6%; the totality of the sectors ROIC expansion is driven by the suppliers,
which appear set as a group to grow returns from 13.4% in 2015 to 15.5% in 2020. The suppliers, bolstered by organic growth as
supplied content per vehicle rises, should improve returns on two fronts: 1) via margin expansion (we see NOPLAT margins
expanding from 6.8% to 7.6%), and 2) on improving asset turns (improving from 1.97x to 2.05x), as a gradual shift to less capital
intensive technological content plays out.
We reflect our preference for suppliers in our target multiples

In the OEM space, the value applied by investors to the respective companies (expressed in terms of EV/IC) tends to be lower than
the anticipated return on capital (expressed in terms of ROIC/FMCC) on our estimates. The explanation, in our view, is that investors
doubt the sustainability of OEM returns, chiefly owing to: 1) cost headwinds from intensifying emissions regulations, 2) the
expectation of medium-term profitability normalisation in China, and 3) potentially the fundamental questioning of the sustainability
of the business model. For the suppliers, in contrast, investors pay a premium for growth. They apply a higher EV/IC than the
anticipated return on capital (ROIC/FMCC) on our estimates. In an industrials space where growth is increasingly scarce, we view the
premium being ascribed as warranted.
Tyres and trucks likely to struggle to improve margins in 2016

Tyre makers have been enjoying peak margins over the past three years, having retained some of the net pricing/raw material
benefit achieved post the crisis. Barring a sharp rebound in raw material prices, we expect the price downs in the industry to
continue to eat away the margin improvement potential from resurging volume and mix development in the developed markets.
Despite offering a more defensive option in a trading sector, we expect further weakness from their exposure to mining and the
North American truck market (Michelin) to limit any meaningful rerating for tyres in 2016. With a more direct exposure to the North
American truck market, Volvo will likely need all the structural improvements to fight to keep returns flat in 2016, another year of
tough end markets, with no signs of recovery yet in Brazil and the Chinese construction equipment market.
A sector compelled to invest in change

The automotive industry appears on the brink of unprecedented change. Societys push to curtail vehicle emissions is promoting
investment in a raft of technologies and giving rise to proliferating alternative powertrain solutions (alternative fuels,
hybridisation, electrification, fuel cells). In parallel, todays active safety features are evolving into tomorrows fully autonomous
driving systems. Together with connectivity for the car, the incorporation of technology into vehicles is providing the backbone of
faster product life cycles and creating new business models. Both OEMs and suppliers are having to invest in the development of
electronics and software and, in so doing, are acquiring new competences and that carry them beyond their traditional domains of
the mechanical world. The change is piquing the interest of new entrants (potentially Google, Apple).
December 16, 2015
Europe: Automobiles
Scale to prevail, consolidation appears necessary

All of this, in our view, supports a case for scale and, in turn, a case for consolidation. FCA CEO Sergio Marchionne has emerged
as an advocate for consolidation in an investment-hungry sector already struggling to earn its cost of capital. Whether FCA, GM,
PSA or another player moves first, we see an industrial logic to consolidation with the process waiting to be set in motion. On the
overall space, we remain neither very bullish nor bearish and we retain our Neutral coverage view. We do, however, see select
opportunities, and we lay out our key action ideas below.
Balanced risks and opportunities

Looking into 2016, we see a balance between investment risks and opportunities relative to our base scenario. Triad volume growth
could surprise on the upside, most likely as result of a more resilient European volume growth outcome and
sooner-than-anticipated recovery in Brazil and Russia. A more accelerated US dollar strengthening vis-a-vis the euro could also add
further uplift to sector earnings and returns. The risks are centred around a weaker-than-expected North American profit pool
development in 2016, accelerated normalisation of China profitability, particularly for export vehicles, as well as further emerging
market devaluation, with a particular risk from a devaluation of the RMB.
December 16, 2015
Europe: Automobiles
Autos 2016: Trading the sector

As we look forward to a new year, we lay out our stock calls for the European autos space below. Reflecting our
structural views, our top picks going into 2016 are FCA (CL-Buy) and Continental (CL-Buy). We see FCA as the bestplaced company to benefit from industry consolidation, and we see Conti as a key beneficiary of auto megatrends,
with global exposure to powertrain, emission, safety, infotainment, and connectivity trends. We upgrade Hella to
Buy on strong organic growth (albeit amid a pause in margin expansion) and reinstate our rating on GKN at Buy on
valuation combined with a resumption in grwoth in 2016E. We introduce 2020 estimates across our coverage.
Sell
Buy
CL-Buy
Exhibit 7: Our key Buy and Sell ideas
Company
Ticker
Price
12M PT
Upside
Thesis
Fiat Chrysler
FCHA.MI
12.5
18
44%
FCAU
$13.6
$19.6
44%
Continental
CONG.DE
214
260
21%
We see Conti as a key beneficiary from the increased focus on the emission standards and other megatrends like ADAS etc. See pick up
in power train growth and margins, and strong FCF due to resilient tyre business.
Daimler
DAIGn.DE
75
87
17%
Daimler remains the only German OEM in our coverage to own: Strong and improving free cash generation (average 6.4 bn pa 201620E) and the most progressive dividend policy among European autos (5.4% yield on 2016E).
Faurecia
EPED.PA
33.5
41.7
24%
We see several drivers for a re-rating of the shares: (1) improvement in the North American business; (2) positive FCF and (3) industry
consolidation/asset disposals.
Peugeot
PEUP.PA
15.8
18.8
19%
The PSA investment case is increasingly predicated on strategic optionality rather than operational improvement: PSA is a more plausible
M&A candidate than most peers (except FCA), with potential to unlock structural value via a Faurecia stake disposal.
GKN
GKN.L
284p
327p
15%
Post underperformance of the shares, we now see upside to consensus estimates for GKN into 2016. With Aerospace business offering a
high quality, less volatile stream of earnings, GKN should command a premium valuation vs. other auto supplier peers.
Hella
HLE.DE
36.4
42.9
18%
We forecast top-quartile organic growth, driven by secular growth trends in LED lighting and view the growth priced in by the market as
rather conservative. We are constructive on the medium term margin expansion at Hella despite limited improvement in 2016..
Valeo
VLOF.PA
134
158
18%
We see strong structural growth for Valeo. While high-single digit' organic growth over 2015-20 is already factored in current Reuters
consensus estimates, continued delivery of this is likely to drive further sector-relative re-rating.
BMW
BMWG.DE
94
95
1%
BMW's two key challenges are: (1) slowing growth and (2) China, both long term (structural margin erosion in the broader premium space)
and near term (competitive pressures vs. peers).
Porsche
PSHG_p.DE
49
47
-3%
We believe legal developments and VW's share price will dictate Porsche SEs share price performance and volatility in the near to
medium term.
Volkswagen
VOWG_p.DE
129
129
0%
Although some EU recall obstacles have abated, significant challenges (litigation, compensation) remain, and these are now concentrated
in North America. The ongoing operational impact remains a question mark.
The FCA investment case hinges on dual streams of value creation: operational (higher profitability in NAFTA, better product-mix) and
structural (spin-off/disposal of non-core supplier business, merger).
Source: Company data, Goldman Sachs Global Investment Research.
December 16, 2015
Europe: Automobiles
Our key action ideas

CL-Buy
12m PT: 18.0/$19.6
CL-Buy
12m PT: 260
Buy
12m PT: 18.8
Peugeot SA (19% upside): We reiterate our Buy rating on PSA, with a new 12-month price target of 18.8 (was 17.8). PSA has
been the best-performing OEM in our coverage ytd, up 55% vs. SXAP up 9%. While we have long expected 2016 to be a
transition year for PSA, with a quiet spell for new launches and the low-hanging fruit already picked from a cost-savings
perspective, we believe the PSA investment case is increasingly predicated on strategic optionality rather than operational
improvement. We continue to see PSA as a more plausible M&A candidate than most peers (except FCA), and also see potential
for the company to unlock structural value via a Faurecia stake disposal. The stock currently trades on 7.4x 2016E P/E, 9%
discount to OEM peers (at 8.1x).
Buy
12m PT: 87
Daimler (17% upside): We reiterate our Buy on Daimler, with a new 12-month price target of 87 (from 86). Daimler shares are
Fiat Chrysler Automotive (44% upside): We reiterate our CL-Buy on FCA with a new 12-month price target of 18.0/$19.6 (was
15.9/$17.7). Year-to-date, FCA shares are up 29% versus OEM average at 19%. Our investment strategy for FCA is based on
dual streams of value creation: operational (higher profitability in NAFTA, better product mix) and structural (spin-off/disposal
of non-core supplier business, merger). The spinoff of Ferrari shares to FCA shareholders takes place in January and, as this
approaches, we expect investors to focus more closely on FCA ex-Ferraris valuation, especially on a GAAP basis vs. US peers.
We see significant value on this basis (we estimate FCA ex-Ferrari (arrived at by stripping out from FCA the value of the Ferrari
EV, and P&L contribution) trades on 2.5x 2016E EV/EBITDAP vs. 3.0x at both GM and Ford, on US GAAP), and note that FCAs
comes with a superior growth profile: FCA on our estimates sports the highest EPS CAGR in the OEM space at 23% 2015-19E,
driven by operational improvement and deleveraging. Furthermore, we continue to view FCA as the key strategic asset in an
autos space set for consolidation and FCA is our top pick in European autos, with the highest upside.
Continental (21% upside): We reiterate our CL-Buy on Continental with a new 12-month price target of 260 (was 244). Conti
shares have outperformed the supplier peers (up 25% vs. supplier average at 18%) year-to-date. Conti is one of the best
positioned auto suppliers, with exposure to a wide range of high-growth products exposed to the above trends, such as
powertrain advancement and emission reduction, active safety, infotainment, connectivity. While many suppliers are exposed
to these themes, Conti is one of the few global auto suppliers that has significant exposure to all of the above-mentioned trends.
We remain constructive on Conti, based on (1) average organic growth of 6.2% over 2016-19E, driven by the automotive
division; (2) powertrain margin improvement offsetting the fall in tyre margins; and (3) strong FCF generation that gives Conti
scope to either deleverage, invest in acquisitions or enhance shareholder returns. The shares currently trade at 13.5x 2016E P/E,
a 2% premium to the supplier average of 13.1x P/E.
up 9% ytd, underperforming SXAP by 1%, despite 19% EPS upgrades (Reuters consensus 2015-17E). We continue to believe that
the Mercedes division can achieve a 10% margin at FY15 and expect the company to generate an average 6.2 bn of free cash
per year over 2016-18E. While some see the best of the Mercedes product story as behind us, we see a smoother product cycle
December 16, 2015
Europe: Automobiles
vs. previous years, with several new SUVs broadening MBCs portfolio. On trucks, despite a slowing US heavy truck market, we
think Daimler can 1) gain share against a challenging backdrop and 2) mitigate some of this volatility with its Class 6-7 business.
We see clear value with the stock trading at 8.4x 2016E P/E, a 10% discount to BMW, and a 3% premium vs. the OEM peer group.
Buy
12m PT: 41.7
Buy
12m PT: 327p
Buy
12m PT: 42.9
Hella (18% upside): We upgrade Hella to Buy with a new 12-month price target of 42.9 (from 37.3). Hella shares have
underperformed SXAP by 5% ytd (up 5% vs. SXAP 9%. We forecast top-quartile organic growth (6.4%) over 2015-19E, driven by
secular growth trends in LED lighting, active safety, CO2 reduction and engine-related electronics. In addition, we view the high
level of capex and R&D spend by Hella to be supportive of stronger growth rates in the coming years. While we still see limited
margin improvement in FY16 (130 bp), we do forecast a sequential improvement in the margins as the headwinds start to ease,
and are constructive on the medium-term margin expansion at Hella. We expect R&D and SG&A ratios to drop from current
peak levels and forecast Hellas EBIT margins to expand to 8.5% by 2019 from 6.4% in 2014. The shares currently trade at 11.1x
2016E P/E vs. supplier average at 13.1x.
Buy
12m PT: 158
Valeo (18% upside): We reiterate our Buy rating on Valeo with a 12-month price target of 158 (from 150). Valeo shares have
Faurecia (24% upside): We reiterate our Buy on Faurecia, with a 12-month price target of 41.7 (was 36.5). Faurecia shares are
up 9% ytd vs. SXAP at 9%. With sequential production expected to improve in China due to lower destocking and improving
sales, we remain confident on Faurecias 2016 targets of >21 bn of sales and 4.5%-5.0% operating margins. We see several
structural drivers for a re-rating of the shares into 2016: (1) improvement in the North American business; (2) positive FCF exworking capital; and (3) industry consolidation and asset disposals. The shares trade on 5.3x 2016E EV/EBIT and 9.2x P/E, a
47%/30% discount to European supplier peers; we forecast best-in-class EBIT/EPS 2015-18E CAGR of 9%/15%.
GKN (15% upside): We reinstate our rating on GKN at Buy, with a 12-month price target of 327p. Post the significant
underperformance of the shares ytd (down 17% vs. SXAP up 18%), we now see upside to Reuters consensus estimates for GKN
into 2016. With production expected to pick up in China in 2016, we expect Driveline to continue to outgrow auto production by
>2% and maintain >8% margins. While AG end markets are likely to remain tough in 2016, we see GKN able to keep profits at
Land Systems at least flat in 2016 with the help of restructuring benefits. We also expect growth to resume for the Aerospace
division in 2016, with margins for the core business (ex-Fokker) at peak levels (GSe: 12.4%). Given we see limited risks for
estimate downgrades, we expect the shares to rerate, especially as GKN resumes de-levering its balance sheet in 2016. GKN
currently trades at 13.0x 2016E P/E, a 1% discount to supplier peers.
outperformed SXAP by 25% ytd (up 30% vs. SXAP 9%). We forecast Valeo to have best-in-class top-line growth among our
coverage, driven by the strong growth of its innovation products: electric superchargers, stop-start systems, LEDs, parking
assistance, ultrasonic sensors, etc. We continue to forecast limited operating leverage over the next five years, owing to the
reversal of depreciation and net capitalized R&D benefits. As a result, we forecast c.9% organic revenue growth on average over
2015-19, but see operating margins expanding only to 9.1% in 2019 from 7.2% in 2014. While the reversals of these accounting
tailwinds hamper margin expansion, they should also lead to improving cash conversion. Along with growth, we believe the
pick-up in free cash flow (excluding working capital) will be a driver of a further re-rating. The shares currently trade at 11.1x
2016E P/E vs. supplier average at 13.1x.
10
December 16, 2015
Europe: Automobiles
Sell
12m PT: 95
Sell
12m PT: 47
Sell
12m PT: 129
BMW (1% upside): We reiterate our Sell rating on BMW, with a new 12-month price target of 95 (from 77). In spite of a recent
recovery, BMW shares have underperformed the sector by 2 percentage points ytd (up 7% vs. sector up 9%). Looking forward,
BMWs structural challenges remain: (1) slowing growth consolidated volumes essentially flat (+0.1% CAGR 2016-19E) vs. ~5%
over the past three years as the premium space becomes crowded; and (2) China both long term (structural margin erosion)
and near term (competitive pressures, particularly against a resurgent Mercedes brand). The outcome, and the key argument
against a positive re-rating of the stock, remains BMWs declining returns profile (2014: 15.4%, 2019E: 12.5% on our estimates).
The stock currently trades at 9.4x 2016E P/E, a 15% premium to OEM peers.
Porsche (3% downside): We reiterate our Sell on Porsche, with a new 12-month price target of 47 (was 36). Porsche shares
are down 26% ytd, negatively impacted alongside VW and therefore significantly underperforming the sector (up 9%). While
Porsche has c.2.5 bn available for investment (earmarked for assets along the automotive value chain), it has to date seemed
in little rush to deploy these funds, having made just one external investment (a stake in traffic information provider Inrix for
US$55 mn in 2014). As such, we believe the current key drivers for Porsche SEs shares are: 1) developments in the legal actions
facing the company; and 2) perhaps more importantly, the value of its 51% stake in VW.
Volkswagen (0% upside): We reiterate our Sell on Volkswagen, with a new 12-month price target of 129 (was 100). VW
shares are have seen the biggest declines in the sector ytd (down 30%), although news flow and share price performance have
been overwhelmingly positive over the past month (+29%). However, we think key challenges (litigation, recalls) remain for VW;
and these are now concentrated in North America. The ongoing operational impact at VW remains a question mark: while
management sounded a confident tone on volumes and inventories, it is too soon evaluate ongoing market share impact. We
halve our estimates of VWs 2015E and 2016E dividends to reflect the risk that VW cut the dividend altogether. On the
fundamentals, VW looks (even more acutely so than pre-scandal) inexpensive, trading at 7.0x 2016E P/E, a 14% discount to OEM
coverage.
11
December 16, 2015
Europe: Automobiles
Looking back to see forward: European Autos modestly outperformed in 2015

Year to date, the European Autos sector (SXAP) has risen 9%, mildly outperforming the European market (Stoxx +4%).
However, the journey this year has been a volatile one, which we view through the lens of three distinct periods.
Euro-fueled optimism (+39%, three months; Jan-Mar): The SXAP sprinted out of the blocks in 2015, up +39% from Jan 2 to
the peak on March 16, driven by the combined impact of strong European car sales, a weakening euro (particularly vs. the US
dollar), and equity markets buoyed by ECB asset purchases.
The decline: China and EM concerns (-35%, six months; Apr-Sep): From peak (March 16) to trough (Sep 29), the sector lost
over a third of its value (-35%): The decline was marked initially by slowing China car sales (May), RMB devaluation rolling into
emerging market growth concerns (August), with the SXAPs downward journey finally culminating in VWs emissions scandal
(Sep-Oct). VW constituted ~13% of the SXAP pre the scandal, but is ~8% now.
Mean reversion (+21%, two months; Oct-ytd): Since the trough on Sep 29, the SXAP has rebounded 21%, helped by VW up
35% on lower than initially expected recall and repair costs. Further support has come from a rebound in China car sales helped
by government incentives and a generally positive 3Q results season.
Exhibit 8: EU Autos has outperformed the market by ~5% year-to-date
Exhibit 9: Nokian, PSA have been the best performers year-to-date
SXAP performance absolute and relative to market (indexed)
ytd performance
150
Euro-fuelled
optimism
140
The decline: China and EM concerns
Nokian
PSA
Renault
Pirelli
FCA
Valeo
Continental
Autoliv
Michelin
SXAP
Faurecia
Daimler
BMW
Stoxx
Hella
CNH Industrial
Volvo
GKN
Porsche
Volkswagen
Mean reversion
130
120
110
100
90
SXAP absolute perf.
Source: Datastream.
SXAP rel. to STOXX
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
80
-40%
-20%
0%
20%
40%
60%
80%
Source: Datastream.
12
December 16, 2015
Europe: Automobiles
Global growth accelerating, but Triad growth looks all but over
The good news is that, in 2016, we believe global car sales can grow faster than they did in 2015, with volume growth accelerating
to 4.8% in 2016 (up from +2.2% in 2015). The geographic mix will likely not look so positive: collapsing emerging markets appear
set to stabilise. In 2015, Russia and Brazil were together responsible for the loss of ~1.5 mn units (i.e., 180 bp of global growth),
whereas this year we see another (lesser) Brazil decline of 15% and Russia back to growth of 5%). We see India volume growth
accelerating to 15%. Chinas resurgence will likely be temporary. Fresh tax incentives (with the potential for additional
rural-focused incentives to follow) could support 2016 volumes (+15%), but by effectively borrowing demand from 2017 (-5%).
When it comes to the Triad markets of US, Japan and Western Europe (from which the majority of global OEM EBIT still originates),
the growth outlook appears bleaker. We forecast Triad volumes barely growing (+0.6%) in 2016 and 2017 and declining thereafter,
with the US close to peak, and W. Europe growth easing substantially on tougher comps (2016 +1.6%).
Exhibit 10: We forecast global auto sales to grow 4.8% in 2016E driven largely by China
Our global light vehicle sales
forecast
Sales (m units)
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
2015E
2016E
2017E
2018E
2019E
2020E
15.6
16.5
17.2
17.3
17.5
15.8
14.2
12.8
4.1%
0.6%
1.2%
-9.7%
-10.1%
-9.9%
5.4
5.6
5.2
5.1
5.0
4.8
4.8
4.7
-7.3%
-2.0%
-2.0%
-2.8%
-1.0%
-1.9%
Total Europe
Western Europe
18.0
12.9
18.3
13.6
18.6
14.7
19.1
14.9
19.5
15.0
20.0
15.2
20.9
15.4
21.2
15.4
1.8%
7.8%
2.4%
1.6%
2.1%
0.8%
3.0%
0.9%
4.3%
1.6%
1.3%
0.0%
Passenger car
USA
Japan
11.4
12.0
12.9
13.1
13.1
13.2
13.5
13.5
7.6%
1.6%
0.6%
0.8%
1.6%
0.0%
Germany
2.8
2.9
3.0
3.0
3.0
3.0
3.0
3.0
5.0%
1.0%
-1.0%
-1.0%
-0.3%
-0.7%
France
1.8
1.8
1.9
2.0
2.1
2.1
2.1
2.1
5.5%
4.0%
2.0%
1.0%
2.3%
-3.5%
Italy
1.3
1.4
1.5
1.6
1.8
1.8
1.9
1.9
12.0%
8.0%
8.0%
3.1%
3.4%
1.6%
UK
2.3
2.5
2.6
2.6
2.5
2.5
2.5
2.5
6.0%
1.0%
-4.0%
-1.5%
0.0%
-1.0%
Spain
0.7
0.9
1.0
1.0
1.0
1.1
1.2
1.2
20.0%
-5.0%
4.0%
7.0%
7.0%
5.9%
Other
2.5
2.6
2.7
2.7
2.7
2.8
2.8
2.8
7.0%
0.0%
0.0%
1.2%
1.4%
0.9%
1.6
1.7
1.8
1.9
1.9
1.9
2.0
2.0
9.0%
2.0%
2.0%
1.5%
1.2%
-0.2%
Eastern Europe (ex-Russia)
LCV
2.2
2.2
2.3
2.4
2.5
2.8
3.0
3.2
7.0%
5.0%
5.0%
10.0%
8.8%
4.2%
Russia
2.8
2.5
1.6
1.7
1.9
2.1
2.4
2.6
-35.0%
5.0%
10.0%
10.0%
18.3%
6.0%
Brazil
3.6
3.3
2.7
2.3
2.4
2.5
2.7
2.9
-20.0%
-15.0%
7.0%
5.0%
6.0%
6.0%
India
3.0
2.9
3.1
3.5
4.1
4.7
5.3
6.0
4.3%
15.3%
17.0%
13.0%
13.0%
13.0%
China
China pass. car
21.4
23.1
24.4
27.5
26.3
27.6
28.9
29.9
5.7%
12.5%
-4.4%
5.0%
4.6%
3.7%
16.9
19.1
20.8
24.0
22.8
24.0
25.2
26.2
9.0%
15.0%
-5.0%
5.5%
5.0%
4.0%
China LCV
Asia (ex-China/Japan/India)
o/w South Korea
4.4
4.0
3.6
3.5
3.5
3.6
3.6
3.7
-10.0%
-2.0%
0.0%
2.0%
2.0%
2.0%
5.5
5.3
5.7
6.0
6.4
6.7
6.9
7.1
6.3%
5.0%
6.5%
4.7%
3.9%
3.3%
1.5
1.5
1.6
1.6
1.6
1.6
1.6
1.6
7.0%
0.0%
0.2%
0.0%
0.0%
-0.3%
RoW
11.1
11.3
11.5
11.9
12.2
12.6
12.9
13.2
1.5%
3.5%
2.9%
2.9%
2.4%
2.5%
Global
83.5
86.4
88.3
92.5
93.3
94.7
96.5
97.8
2.2%
4.8%
0.9%
1.5%
1.9%
1.3%
Global ex-China
62.1
63.3
63.9
65.1
67.1
67.1
67.7
67.9
0.9%
1.9%
3.1%
0.1%
0.8%
0.3%
Triad
33.9
35.7
37.0
37.3
37.5
35.8
34.4
32.9
3.7%
0.6%
0.6%
-4.5%
-3.9%
-4.3%
Source: IHS Global Insight, Company data, Goldman Sachs Global Investment Research.
13
December 16, 2015
Europe: Automobiles
Returns drive valuation: Our ROIC valuation framework explained

We believe that return on capital is the primary driver of valuation in autos. Our valuation framework assumes that a
companys enterprise value to invested capital ratio (EV/IC) is proportionate to its return on invested capital to fair market cost of
capital ratio (ROIC/FMCC). We observe a good correlation between our forecast 2016/17 economic returns (ROIC/FMCC at 8%) and
current valuations (EV/IC) with an R2 of 72% and 71%, respectively (Exhibits 11 and 12).
Exhibit 11: Economic returns drive valuation for the sector, R2 = 72% on
2016E
Exhibit 12: and R2 = 71% on 2017E

EV/IC vs. ROIC/FMCC (2017E)
EV/IC (2017E)
EV/IC (2016E)
EV/IC vs. ROIC/FMCC (2016E)

4.0
Nokian
3.5
3.0
R = 72%
2.5
1.5
0.5
Nokian
3.0
R = 71%
Autoliv
Continental
Valeo
2.0
GKN
Hella
Volvo Faurecia
Michelin BMW
CNH Ind.
1.5
Hella
GKN BMW Faurecia
CNH Ind.Volvo
Daimler
Michelin
Renault
Peugeot
FCA
1.0
3.5
2.5
Autoliv
Valeo Continental
2.0
4.0
1.0
Renault
0.5
VW
0.0
VW FCA
Daimler
Peugeot
0.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
ROIC/FMCC (@8%, 2017E)

Investors hesitate to pay for OEM returns... Among the OEMs, the value applied by investors to the respective
companies (expressed in terms of EV/IC) tends to be lower than the anticipated return on capital (expressed in terms of
ROIC/FMCC) on our estimates (or expressed differently, the gradient of the best fit line in Exhibit 13 is 0.51). The explanation
is, in our view, that investors doubt the sustainability of OEM returns, chiefly due to 1) cost headwinds from intensifying
emissions regulations and 2) the expectation of medium-term profitability normalisation in China.
...But are willing to credit suppliers for future growth: For the suppliers, in contrast, investors apply a higher EV/IC than
the anticipated return on capital (ROIC/FMCC) on our estimates: (i.e., the gradient of the best fit line in Exhibit 15 is 1.4),
reflecting the markets willingness to look further out and credit suppliers as a group with superior organic growth: In an
industrials space where growth is increasingly scarce, we view the premium ascribed by investors as warranted.
14
December 16, 2015
Europe: Automobiles
Exhibit 14: as investors currently hesitate to pay for OEM returns
OEM EV/IC vs. ROIC/FMCC (2016E)
OEM ROIC vs. share-price implied ROIC
EV/IC (2016E)
Exhibit 13: OEM trade at a discount on 2016E
2.5
16%
2.0
12%
1.5
8%
BMW
1.0
R = 69%
Daimler
4%
Renault
Peugeot
FCA
VW
2017E
Implied ROIC
Exhibit 15: Supplier returns and valuation are correlated, with R2 = 76%
Exhibit 16: Market already paying for improving supplier returns
Suppliers EV/IC vs. ROIC/FMCC (2016E)
Supplier ROIC vs. share-price implied ROIC

20%
3.5
Nokian
R = 76%
16%
3.0
Autoliv
2.5
12%
Continental
Valeo
2.0
8%
GKN
1.5
Hella
Michelin
1.0
4%
Faurecia
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Supplier ROIC
2017E
2014
2016E
0.0
2015E
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2000
2002
0%
0.5
2001
EV/IC (2016E)
4.0
2020E
OEM ROIC
2020E
2.0
2.5
2019E
1.5
2018E
1.0
2019E
0.5
2018E
0.0
2016E
2014
0.0
2015E
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0%
2000
0.5
Implied ROIC
15
December 16, 2015
Europe: Automobiles
Exhibit 17: We forecast 60 bp ROIC expansion for the sector over 2015-20E period
Sector ROIC progression
ROIC
BMW
Daimler
FCA
Peugeot
Renault
VW
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
CNH Ind.
Volvo
Sector
OEMs
Suppliers
Trucks
2004
10.5%
9.7%
-1.2%
8.8%
7.1%
2.2%
9.3%
16.1%
6.4%
8.6%
2005
8.9%
3.2%
3.0%
5.6%
4.4%
3.6%
9.4%
16.4%
4.0%
9.5%
2006
8.8%
6.3%
6.1%
3.0%
3.4%
5.9%
11.2%
16.2%
0.8%
9.7%
2007
10.0%
7.6%
9.9%
5.7%
4.4%
7.9%
11.5%
9.2%
2.6%
10.3%
2008
8.2%
7.5%
8.4%
0.8%
1.7%
6.3%
5.8%
6.8%
2.5%
7.5%
2009
1.1%
-2.1%
2.6%
-3.2%
-0.2%
1.7%
1.7%
5.3%
-0.4%
4.3%
2010
13.5%
10.0%
3.0%
5.2%
2.8%
7.9%
16.4%
10.4%
11.6%
11.4%
2011
17.4%
11.4%
3.2%
3.3%
3.1%
9.0%
16.1%
12.0%
13.2%
12.1%
2012
17.1%
10.3%
4.2%
-2.2%
3.1%
6.9%
13.8%
14.2%
7.6%
11.5%
11.8%
26.3%
11.5%
9.9%
8.6%
8.0%
7.2%
12.7%
9.1%
2013
14.7%
10.2%
3.8%
-0.2%
4.1%
6.4%
13.2%
15.4%
8.1%
12.4%
11.8%
10.5%
22.5%
12.3%
10.8%
4.9%
7.7%
6.9%
12.9%
7.2%
2014
15.4%
12.4%
3.9%
3.4%
4.5%
6.7%
13.3%
15.9%
9.8%
12.1%
11.4%
9.4%
19.6%
13.3%
10.0%
4.9%
8.4%
7.9%
12.8%
7.0%
2015E
13.9%
15.6%
5.6%
11.1%
6.1%
7.8%
13.3%
16.2%
14.0%
11.6%
11.1%
10.3%
20.4%
14.3%
7.0%
10.3%
10.0%
9.6%
13.4%
8.9%
2016E
13.2%
15.2%
7.0%
11.3%
6.5%
5.8%
14.0%
16.2%
15.5%
11.5%
12.0%
10.0%
21.9%
15.6%
7.2%
10.0%
9.4%
8.8%
13.7%
8.8%
2017E
13.5%
15.0%
9.3%
11.6%
7.2%
6.3%
13.9%
16.5%
15.5%
12.3%
13.4%
10.1%
21.9%
16.1%
7.9%
11.3%
10.1%
9.4%
14.1%
9.8%
2018E
13.4%
14.7%
9.5%
11.3%
7.1%
6.9%
14.1%
17.0%
15.7%
12.8%
14.4%
10.3%
21.0%
17.0%
8.9%
12.4%
10.4%
9.7%
14.5%
10.8%
2019E
12.5%
14.1%
9.8%
11.0%
6.8%
7.2%
14.8%
17.6%
15.7%
13.4%
15.2%
10.7%
21.2%
17.9%
9.7%
13.4%
10.5%
9.6%
15.1%
11.7%
2020E
11.6%
12.9%
9.8%
9.8%
7.1%
7.9%
14.8%
18.1%
15.1%
14.3%
15.9%
11.0%
21.5%
18.6%
10.6%
14.4%
10.6%
9.6%
15.5%
12.7%
8.5%
21.8%
7.6%
8.9%
17.2%
6.2%
8.0%
19.1%
5.7%
9.6%
25.3%
6.3%
5.3%
21.7%
4.6%
5.1%
8.3%
2.7%
9.5%
18.9%
13.6%
9.9%
29.1%
13.3%
10.4%
7.6%
7.1%
10.0%
10.4%
14.2%
5.6%
4.4%
9.9%
14.2%
16.1%
6.7%
5.7%
9.5%
16.1%
14.2%
7.9%
7.3%
9.1%
14.2%
8.8%
5.8%
5.4%
6.3%
8.8%
-5.5%
0.3%
-0.1%
4.4%
-5.5%
9.4%
8.7%
8.1%
11.2%
9.4%
13.5%
9.2%
8.4%
12.3%
13.5%
2012
7.3%
4.8%
1.9%
-0.9%
2.4%
5.0%
6.9%
7.9%
1.6%
6.7%
4.7%
7.7%
21.4%
4.2%
4.0%
4.1%
4.4%
4.0%
6.3%
4.1%
2013
6.6%
4.8%
1.7%
-0.1%
3.1%
5.0%
6.5%
8.3%
1.8%
7.4%
5.4%
7.4%
21.0%
4.4%
4.4%
2.5%
4.3%
4.1%
6.4%
3.4%
2014
7.4%
5.5%
1.8%
1.2%
3.4%
5.3%
6.4%
8.5%
2.0%
7.4%
5.4%
7.3%
18.4%
4.9%
4.3%
2.5%
4.7%
4.6%
6.5%
3.3%
2015E
6.6%
6.4%
2.3%
3.4%
4.4%
6.0%
6.8%
8.4%
2.7%
7.4%
5.2%
8.1%
18.2%
5.1%
3.8%
5.0%
5.4%
5.2%
6.7%
4.5%
2016E
6.7%
6.3%
2.7%
3.4%
4.6%
4.6%
6.9%
8.6%
3.0%
7.2%
5.4%
8.1%
19.2%
5.5%
4.0%
5.0%
5.1%
4.8%
6.9%
4.5%
2017E
7.2%
6.7%
3.6%
3.5%
5.0%
5.0%
6.9%
8.6%
3.1%
7.5%
5.8%
8.3%
19.8%
5.7%
4.3%
5.4%
5.5%
5.3%
7.1%
4.9%
2018E
7.6%
6.8%
3.7%
3.5%
4.9%
5.3%
7.0%
8.7%
3.3%
7.7%
5.9%
8.4%
19.9%
6.0%
4.7%
5.7%
5.7%
5.5%
7.2%
5.3%
2019E
7.3%
6.7%
3.8%
3.5%
4.6%
5.5%
7.2%
8.9%
3.3%
7.8%
5.9%
8.7%
20.3%
6.3%
5.0%
6.1%
5.8%
5.5%
7.4%
5.6%
2020E
7.1%
6.3%
3.8%
3.3%
4.6%
5.8%
7.1%
9.0%
3.4%
8.2%
5.7%
8.9%
20.3%
6.5%
5.3%
6.4%
5.8%
5.4%
7.5%
6.0%
1st Quartile
2nd Quartile
3rd Quartile
4th Quartile
Exhibit 18: driven by 40 bp improvement in NOPLAT margin

Sector NOPLAT margin progression
NOPLAT margin
BMW
Daimler
FCA
Peugeot
Renault
VW
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
CNH Ind.
Volvo
Sector
OEMs
Suppliers
Trucks
2004
5.0%
4.3%
-0.5%
2.7%
4.3%
1.4%
6.0%
8.0%
2.1%
5.2%
2005
4.5%
2.4%
1.4%
2.0%
3.0%
2.1%
5.9%
8.3%
1.3%
5.0%
2006
4.6%
4.7%
2.5%
1.2%
2.7%
3.2%
6.9%
8.3%
0.2%
5.4%
2007
4.8%
4.3%
3.7%
2.1%
3.5%
4.3%
6.7%
8.1%
0.7%
5.8%
2008
4.2%
3.7%
3.3%
0.3%
1.5%
3.7%
3.5%
5.7%
0.6%
4.4%
2009
0.6%
-1.3%
1.3%
-1.4%
-0.2%
1.2%
1.2%
4.7%
-0.1%
2.8%
2010
6.0%
4.9%
1.6%
2.0%
2.2%
5.0%
8.5%
6.8%
2.3%
6.0%
2011
7.6%
5.4%
1.7%
1.3%
2.4%
6.0%
7.6%
7.1%
2.6%
6.4%
5.2%
15.9%
3.4%
5.9%
14.0%
2.8%
5.4%
15.2%
2.7%
6.5%
18.9%
2.8%
3.8%
19.0%
2.1%
4.0%
10.6%
1.3%
6.4%
17.4%
5.0%
6.4%
21.7%
4.8%
4.8%
3.7%
3.4%
5.1%
4.8%
5.5%
3.2%
2.6%
5.1%
5.5%
6.2%
3.8%
3.4%
5.0%
6.2%
5.7%
4.3%
3.9%
5.4%
5.7%
4.3%
3.3%
3.0%
3.9%
4.3%
-3.9%
0.2%
-0.1%
3.1%
-3.9%
5.0%
4.7%
4.4%
5.9%
5.0%
6.0%
4.9%
4.6%
6.1%
6.0%
1st Quartile
2nd Quartile
3rd Quartile
4th Quartile
16
December 16, 2015
Europe: Automobiles
Exhibit 19: offsetting a modest decline (-1x) in asset turn

Sector asset turn
Asset turn
BMW
Daimler
FCA
Peugeot
Renault
VW
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
CNH Ind.
Volvo
Sector
OEMs
Suppliers
Trucks
2004
2.1
2.3
2.5
3.2
1.6
1.6
1.6
2.0
3.0
1.7
2005
2.0
1.4
2.1
2.7
1.5
1.7
1.6
2.0
3.2
1.9
2006
1.9
1.4
2.4
2.5
1.3
1.8
1.6
1.9
3.6
1.8
2007
2.1
1.7
2.7
2.7
1.3
1.9
1.7
1.1
4.0
1.8
2008
2.0
2.0
2.5
2.4
1.1
1.7
1.7
1.2
4.0
1.7
2009
1.9
1.6
2.0
2.2
1.0
1.4
1.4
1.1
3.6
1.5
2010
2.2
2.0
1.8
2.7
1.3
1.6
1.9
1.5
5.1
1.9
2011
2.3
2.1
2.0
2.6
1.3
1.5
2.1
1.7
5.1
1.9
1.7
1.4
2.2
1.5
1.2
2.2
1.5
1.3
2.2
1.5
1.3
2.2
1.4
1.1
2.2
1.3
0.8
2.0
1.5
1.1
2.7
1.5
1.3
2.8
2.2
2.1
2.1
2.0
2.2
2.6
1.8
1.7
1.9
2.6
2.6
1.7
1.7
1.9
2.6
2.5
1.9
1.9
1.7
2.5
2.1
1.8
1.8
1.6
2.1
1.4
1.5
1.6
1.4
1.4
1.9
1.9
1.8
1.9
1.9
2.2
1.9
1.8
2.0
2.2
2012
2.3
2.1
2.2
2.5
1.3
1.4
2.0
1.8
4.7
1.7
2.1
1.5
1.2
2.7
2.5
2.1
1.8
1.8
2.0
2.2
2013
2.2
2.1
2.2
2.7
1.3
1.3
2.0
1.9
4.6
1.7
2.2
1.4
1.1
2.8
2.4
2.0
1.8
1.7
2.0
2.2
2014
2.1
2.3
2.2
2.9
1.3
1.2
2.1
1.9
4.8
1.6
2.1
1.3
1.1
2.7
2.3
2.0
1.8
1.7
2.0
2.1
2015E
2.1
2.4
2.4
3.3
1.4
1.3
1.9
1.9
5.2
1.6
2.1
1.3
1.1
2.8
1.9
2.1
1.9
1.8
2.0
2.0
2016E
2.0
2.4
2.5
3.4
1.4
1.3
2.0
1.9
5.2
1.6
2.2
1.2
1.1
2.8
1.8
2.0
1.8
1.8
2.0
1.9
2017E
1.9
2.2
2.6
3.3
1.4
1.3
2.0
1.9
5.0
1.6
2.3
1.2
1.1
2.8
1.9
2.1
1.8
1.8
2.0
2.0
2018E
1.8
2.2
2.5
3.2
1.5
1.3
2.0
1.9
4.8
1.7
2.4
1.2
1.1
2.8
1.9
2.2
1.8
1.8
2.0
2.0
2019E
1.7
2.1
2.6
3.1
1.5
1.3
2.1
2.0
4.7
1.7
2.6
1.2
1.0
2.9
2.0
2.2
1.8
1.8
2.0
2.1
2020E
1.6
2.1
2.6
3.0
1.6
1.3
2.1
2.0
4.5
1.7
2.8
1.2
1.1
2.9
2.0
2.2
1.8
1.8
2.1
2.1
2012
32.8
53.6
38.0
22.6
32.5
139.1
3.2
18.2
3.7
4.7
2.2
14.1
1.3
4.3
10.4
16.5
397.2
318.7
51.7
26.8
2013
34.2
55.4
39.5
20.1
30.9
155.9
3.2
17.9
3.9
5.0
2.2
14.3
1.4
4.3
10.4
16.0
414.9
336.1
52.4
26.4
2014
38.6
57.2
43.2
18.3
31.0
162.1
3.3
18.4
3.9
5.3
2.5
15.2
1.3
4.6
10.8
15.5
431.4
350.4
54.7
26.3
2015E
43.8
60.4
46.6
17.0
32.6
164.8
4.2
20.3
4.0
6.3
2.7
16.6
1.2
5.1
12.7
16.0
454.4
365.2
60.5
28.7
2016E
47.3
63.8
46.1
16.5
34.1
166.8
4.6
22.0
4.2
6.8
2.9
17.4
1.2
5.4
12.8
16.2
468.2
374.5
64.6
29.0
2017E
50.2
67.8
48.2
17.0
35.6
171.8
5.0
22.8
4.5
6.9
2.9
18.0
1.3
5.8
13.0
16.2
487.1
390.6
67.3
29.2
2018E
53.0
71.9
49.9
18.0
37.3
173.3
5.1
23.8
4.8
7.0
2.9
18.5
1.5
6.2
13.2
16.4
502.8
403.4
69.8
29.6
2019E
55.9
76.0
51.0
19.3
39.1
173.3
5.3
24.8
5.1
7.1
2.9
18.9
1.6
6.5
13.5
16.6
516.9
414.5
72.3
30.1
2020E
58.9
80.0
52.3
20.6
40.9
172.8
5.5
25.7
5.5
7.3
2.8
19.3
1.7
7.0
13.8
16.8
530.8
425.4
74.8
30.6
1st Quartile
2nd Quartile
3rd Quartile
4th Quartile
Exhibit 20: on higher invested capital base (17% growth over 2015-20E)
Sector average invested capital
Average IC (bn)
BMW
Daimler
FCA
Peugeot
Renault
VW
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
CNH Ind.
Volvo
Sector
OEMs
Suppliers
Trucks
2004
21.0
62.1
2005
23.7
69.3
2006
25.7
73.2
2007
26.7
58.2
2008
27.2
48.3
2009
26.8
48.5
2010
27.0
47.8
17.4
24.6
55.3
3.2
6.2
3.5
3.1
20.6
27.9
57.0
3.1
7.0
3.5
2.8
21.8
31.2
56.9
3.0
7.7
3.3
3.0
21.7
32.3
58.5
2.9
14.5
3.2
3.2
22.3
33.9
67.3
2.7
20.0
3.0
3.2
21.9
32.8
73.8
2.7
18.0
2.6
3.1
21.1
31.1
79.2
2.8
17.1
2.7
3.1
2011
29.9
50.6
36.8
22.8
32.6
104.8
2.8
18.0
3.2
3.5
9.5
4.2
10.3
0.6
4.5
11.1
0.7
4.7
11.5
0.8
4.3
11.7
0.9
4.0
11.6
1.0
3.7
12.1
1.0
3.6
13.4
1.1
3.9
10.7
221.3
180.5
30.2
10.7
10.0
240.3
198.5
31.7
10.0
10.8
253.0
208.8
33.4
10.8
12.4
250.1
197.4
40.3
12.4
15.2
259.8
199.0
45.6
15.2
14.6
261.0
203.9
42.5
14.6
14.6
263.3
206.3
42.4
14.6
15.4
338.8
277.5
45.8
15.4
1st Quartile
2nd Quartile
3rd Quartile
4th Quartile
17
December 16, 2015
Europe: Automobiles
18
December 16, 2015
Europe: Automobiles
Company Section
19
December 16, 2015
Europe: Automobiles
20
December 16, 2015
Europe: Automobiles
BMW (BMWG.DE): Growth slowing, ROIC stalling; reiterate Sell

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
BMW (BMWG.DE)
Europe Autos & Auto Parts Peer Group Average
* Returns = Return on Capital
For a complete description of the investment

profile measures please refer to the
disclosure section of this document.
Key data
Current
Price ()
12 month price target ()
Upside/(downside) (%)
Market cap ( mn)
Enterprise value ( mn)
94.11
95.00
1
60,560.7
59,797.4
12/17E
93,720.0
1.4
10,308.2
11.9
10.79
9.54
3.8
8.7
4.3
7.6
12.5
Revenue ( mn) New

Revenue revision (%)
EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
80,401.0
0.0
9,118.0
0.0
8.83
8.83
4.4
9.9
3.3
6.0
15.1
12/15E
92,520.0
1.1
9,511.8
8.3
9.51
8.68
4.4
9.9
3.5
5.1
13.3
12/16E
94,100.0
2.0
9,665.4
9.5
10.05
9.09
4.1
9.4
3.7
6.2
12.6
Price performance chart
Source of opportunity
After delivering a respectable 9.1% margin at 3Q, albeit one flattered by weak earnings quality (overproduction,
R&D capitalisation), BMW has surprised us positive both on volumes and operating leverage; this has been
helped by a return to growth for China imports (the positive growth since August has interrupted 13 months of
declines), and is in spite of being in the midst of a quiet period in the product cycle. This strong operational
execution has eased our fears that BMW could miss its FY15 solid (i.e. >5%) pretax profit guidance. We now see
pretax profit growing by 7.4% in 2015, on our new numbers. We raise our EBIT forecasts by, on average, 13%
over 2015-19. Our EBIT estimates are 1%/0%/2% ahead of consensus in 2015-17E.
Catalyst
In spite of a recent recovery, BMW shares have underperformed the sector by 2% ytd (up 7% vs. sector up 9%).
Looking forward, we believe BMWs structural challenges remain: (1) slowing growth we forecast essentially
flat consolidated volumes (+0.1% CAGR 2016-19E) vs. ~5% over the past three years, as the premium space
becomes crowded; and (2) China both long term (structural margin erosion) and near term (competitive
pressures, particularly against a resurgent Mercedes brand). The outcome, and our key argument against a
positive re-rating of the stock, remains BMWs declining returns profile (2014: 15.4%, 2019E: 12.5%, on our
estimates).
Valuation
We base our 12-month price target on a 2016E ROIC of 13.2% and assume the 0.75x EV/IC equals ROIC/FMCC
(from 0.7x previously), implying a modest de-rating vs. the current market valuation (at 0.8x). Our valuations for
our sector coverage now apply a FMCC of 8.0% across the board rather than company-specific FMCCs (e.g. we
previously applied 8.5% for BMW). As a result of this change, our 12-month price target increases to 95 (from
77), implying 1% upside potential (vs average up/downside of 14% implied by our price targets for our sector
coverage). The stock currently trades at a 9.4x 2016E P/E, a 15% premium to our OEM coverage and a 12%
premium to its closest peer Daimler.
130
560
120
530
110
500
100
470
90
440
Key risks
80
410
70
Dec-14
380
The key risks to our BMW investment case and price target include; 1) better organic volume growth
(fundamentally a function of BMW being able to maintain market share in the face of an ageing product line), 2)
stable/growing consolidated China profits (i.e. the failure of normalizing consolidated China profits), 3) better
structural cost containment efforts (i.e. the successful pass-through of rising content costs), together with 4)
further significant euro weakening vs. USD / RMB / GBP (any or all), which would generate additional
translational FX tailwinds.
Mar-15
BMW (L)
Share price performance (%)

Absolute
Rel. to FTSE World Europe (EUR)
Jun-15
Sep-15
FTSE World Europe (EUR) (R)
3 month
10.0
10.4
6 month 12 month
(7.1)
4.2
3.4
0.7
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 12/11/2015 close.
Source: Company data, FactSet, Goldman Sachs Global Investment Research.
21
December 16, 2015
Europe: Automobiles
BMW in six charts

Exhibit 21: We see BMW as the
best-positioned European OEM
Exhibit 22: Consolidated unit sales growth is

slowing
Autos GS Competitive Positioning framework
Unit sales (k), consolidated vs. China at-equity
100%
BMW
Hella
3,000
2,500
Daimler
Continental
1,500
1,000
500
500
Peugeot
0
Consolidated volumes
Source: Goldman Sachs Global Investment Research.
Exhibit 24: Model refresh cycle does not begin

until 2017
Volume-weighted portfolio model age
Imports EBIT
2014
Components EBIT

Research.

Research.
Exhibit 25: Stock has been an underperformer
Exhibit 26: Declining ROIC dampens re-rating

chances
Consensus EBIT ( mn) and share price ()

performance
BMW ROIC vs. share price-implied ROIC

110
11,000
2007
JV China production
2020E
100%
2019E
75%
2018E
50%
Structural score
2017E
25%
2016E
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
Renault
0%
2015E
Volvo
1,000
2013
Nokian
2012
CNH
Industrial
2,000
2011
Michelin
FCA
1,500
2010
Autoliv
Valeo
2,500
2,000
Volkswagen
50%
25%
3,500
2009
GKN
3,000
2008
Faurecia
Consolidated China EBIT progression
mn
Growth score
75%
Exhibit 23: Declining China EBIT
20%
105
5-Series
10,000
X3
X5
100
X5
X1
9,000
90
1-Series/
3-Series
Mini
85
8,000
75
7,000
BMW brand
Mini

Research.
8%
4%
2015
GSe 2015
Perf v SXAP
2016
GSe 2016
Dec 15
Aug 15
Apr 15
Dec 14
Aug 14
Apr 14
70
Dec 13
2019E
2018E
2017E
2016E
2015E
2014
2013
12%
80
BMW Group
16%
95
2017
GSe 2017

Research, Datastream
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
ROIC
Implied ROIC

Research.
22
December 16, 2015
Europe: Automobiles
BMW Summary Financials

Exhibit 27: BMW financial summary
m
P&L
2015E
2016E
2017E
2018E
2019E
2020E
m
Balance Sheet
2015E
2016E
2017E
2018E
2019E
2020E
Revenues
Depreciation and Amortisation
EBITDA
92,520
-4,628
14,140
94,100
-5,190
14,855
93,720
-5,712
16,020
93,690
-5,964
16,606
94,840
-6,054
16,400
95,840
-6,211
16,302
Current Assets
Fixed Assets
59,662
18,106
62,648
18,980
65,341
19,424
69,204
19,716
72,858
20,075
76,227
20,412
9,512
583
-211
9,665
536
-191
10,308
596
-171
10,642
664
-151
10,346
718
-131
10,091
782
-111
160,210
60,122
58,288
164,799
60,259
58,288
168,587
60,226
58,288
173,344
60,223
58,288
177,922
60,322
58,288
182,177
60,409
58,288
9,353
-3,087
9,881
-3,261
10,603
-3,499
11,025
-3,638
10,803
-3,565
10,633
-3,509
Equity
Minority Interests
41,800
237
46,252
259
50,073
282
54,832
306
59,312
330
63,481
353
-20
6,246
9.51
-22
6,599
10.05
-23
7,081
10.79
-24
7,363
11.21
-24
7,214
10.99
-23
7,101
10.82
3.30
3.50
4.00
4.20
4.50
4.50
ROIC
Revenue
NOPLAT
92,520
6,109
94,100
6,260
93,720
6,786
93,690
7,091
94,840
6,962
95,840
6,847
Avg. Invested Capital

ROIC
43,836
13.9%
47,303
13.2%
50,234
13.5%
53,013
13.4%
55,909
12.5%
58,878
11.6%
6.6%
2.1x
8.0%
6.7%
2.0x
8.0%
7.2%
1.9x
8.0%
7.6%
1.8x
8.0%
7.3%
1.7x
8.0%
7.1%
1.6x
8.0%
EBIT
Associated Companies
Financial Result
Pre-tax
Tax
Minority Interest
Net Income
EPS
DPS
Total Assets
Current Liabilities
Long-term Liabilities
Cash Flow
Net income
6,246
6,599
7,081
7,363
7,214
7,101
NOPLAT Margin (%)

Asset Turn
WACC

Operating Cash Flow
Working Capital
4,628
9,960
-346
5,190
10,479
-102
5,712
11,453
-232
5,964
11,936
-511
6,054
11,801
-604
6,211
11,766
-604
EV/IC:ROIC/WACC
EV/IC
Implied EV
0.7x
1.2x
54,389
0.8x
1.2x
58,690
0.7x
1.2x
62,327
0.7x
1.2x
65,774
0.8x
1.2x
69,369
0.9x
1.2x
73,052
Operating Cash Flow incl. WC

less Capex
Other Investing
9,614
-6,480
-900
10,377
-6,590
0
11,221
-6,560
0
11,425
-6,560
0
11,198
-6,640
0
11,162
-6,710
0
Implied Equity Value

Number of Shares
55,251
644
61,151
645
66,145
645
71,808
645
77,179
645
82,339
645
86
95
103
111
120
128
Investing Cash Flow

Free Cash Flow
-7,380
2,234
-6,590
3,787
-6,560
4,661
-6,560
4,865
-6,640
4,558
-6,710
4,452
Share Buyback
Dividends
Other Financing
0
-1,904
0
0
-2,168
0
0
-3,284
0
0
-2,627
0
0
-2,758
0
0
-2,955
0
Financing Cash Flow
-1,904
-2,168
-3,284
-2,627
-2,758
-2,955
Net Debt (Cash)

Gearing (Net Debt/Equity)
Change in Net Debt (Cash)
-4,370
-0.1x
1,270
-5,990
-0.1x
-1,620
-7,370
-0.1x
-1,380
-9,610
-0.2x
-2,240
-11,410
-0.2x
-1,800
-12,910
-0.2x
-1,500
Implied Equity Value per Share
Valuation
EV/Sales
46%
39%
36%
34%
Target EV/Sales
EV/EBIT
Target EV/EBIT
48%
7.0x
7.6x
45%
6.1x
7.0x
42%
5.1x
5.9x
39%
4.6x
5.4x
9.1x
10.5x
8.1x
9.4x
7.0x
8.0x
6.7x
7.6x
P/E
Target P/E
23
December 16, 2015
Europe: Automobiles
BMW summary financials (contd.)

Exhibit 28: BMW financial summary
m
Revenue by division
Auto
Motorcycles
2015E
2016E
2017E
2018E
2019E
2020E
m
Quarterly EBIT
1Q
2Q
2015E
2,521
2,525
3Q
4Q
2,354
2,112
Total
9,512
85,606
2,010
86,974
2,110
86,551
2,220
86,237
2,330
86,865
2,450
87,393
2,570
23,688
-18,780
24,605
-19,590
24,415
-19,470
24,450
-19,330
25,196
-19,670
25,725
-19,850
92,520
15%
94,100
2%
93,720
0%
93,690
0%
94,840
1%
95,840
1%
7,462
7,545
8,188
8,502
8,126
7,801
220
240
260
280
300
320
2Q
10.5%
Financial Services
Reconciliation
1,960
-130
2,030
-150
2,020
-160
2,020
-160
2,080
-160
2,120
-150
3Q
4Q
10.5%
8.3%
Group
% growth
9,512
4%
9,665
2%
10,308
7%
10,642
3%
10,346
-3%
10,091
-2%
Total
10.0%
EBIT margin
Auto
8.7%
8.7%
9.5%
9.9%
9.4%
8.9%
Motorcycles
Financial Services
10.9%
8.3%
11.4%
8.3%
11.7%
8.3%
12.0%
8.3%
12.2%
8.3%
Reconciliation
Group
0.7%
10.3%
0.8%
10.3%
0.8%
11.0%
0.8%
11.4%
0.8%
10.9%
Financial Services
Reconciliation
Group
% growth
EBIT by division
Auto
Motorcycles
Quarterly EBIT margin

1Q
2016E
2017E
2018E
2019E
2020E
12.1%
Auto EBIT Walk

Underlying EBIT previous year
7,244
7,462
7,545
8,188
8,502
8,126
12.5%
8.2%
Margin, %
9.6%
8.7%
8.7%
9.5%
9.9%
9.4%
0.8%
10.5%
Volume/Mix/Market
FX & commodities
362
617
255
636
65
1,418
44
790
-29
20
8
0
-429
-333
-562
-247
-522
-318
-252
-269
-90
-277
-157
-176
7,462
8.7%
7,545
8.7%
8,188
9.5%
8,502
9.9%
8,126
9.4%
7,801
8.9%
Depreciation
Other changes
Underlying EBIT current year
Margin, %
24
December 16, 2015
Europe: Automobiles
Daimler (DAIGn.DE): Consistent execution flowing into free cash; reiterate Buy
Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Daimler AG (DAIGn.DE)
Daimler is focused on delivering with consistency. At 3Q, Mercedes posted its second consecutive >10% EBIT
margin result, and we estimate it should achieve a 10% margin at FY15. Meanwhile, through strong capital
discipline, Daimler has surprised positively on cash generation, raising its free cash guidance: we now expect
the company to generate an average 5.7 bn of free cash per year over the next three years. This is the
foundation for our expectation of a 4.0 2016 DPS (i.e. a payout of 45% of net income), on which Daimler shares
currently yield a respectable 5.4%.


Key data
Current
Price ()
Market cap ( mn)
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
129,872.0
0.0
9,995.0
0.0
5.95
5.95
5.0
10.9
3.8
1.0
9.5
12/15E
147,508.0
(0.1)
13,309.4
(0.3)
8.51
8.48
4.3
8.8
4.4
8.1
13.6
12/16E
152,501.8
0.3
13,716.4
(3.9)
8.90
9.21
4.1
8.4
5.4
7.3
13.1
74.63
87.00
17
79,839.2
73,384.9
12/17E
152,439.5
(0.9)
14,447.0
(3.4)
9.38
9.65
3.8
8.0
6.0
7.6
12.9
While some see the best of the Mercedes product story as behind us, we see a smoother product cycle vs.
previous years (several new SUVs have broadened MBCs portfolio); also, the E-Class family rolling out from
early 2016 should address the poor profitability of the outgoing product. The next leg of the product story is the
new small car family roll-out from 2017.
We see the clear risk for Daimler as the US heavy truck market, where Class 8 orders have contracted for several
months, and where we expect a 21% market decline in 2016. For context, the truck division is ~20% of group
EBIT (2015E), and, within that, NAFTA provides 47% (2015E) of the truck divisions revenue. Nonetheless, we
think Daimler can 1) gain share against a challenging backdrop and 2) mitigate some of this volatility with its
Class 6-7 business: We forecast 2016 truck division EBIT to be roughly flat yoy vs. 2015E at 2.8bn.
Catalyst
We forecast continued EBIT growth at Daimler over 2015-17. The key drivers are better profitability at Mercedes
(on higher European volumes and Fit-For-Leadership-driven cost control running better than expected) and
stable margins at Trucks (at ~7.6%) and the Financial Services (at 8.2%) on our estimates for 2016. We
downgrade our group EBIT forecasts by -2.6% on average over 2015-17, on weaker trucks profitability partially
offset by more positive currency tailwinds at Mercedes.
100
540
95
520
90
500
85
480
Valuation
80
460
75
440
70
420
65
400
We base our 12-month price target on a 2016E ROIC of 15.2% and assume the 0.7x EV/IC equals ROIC/FMCC
(unchanged), implying a modest re-rating vs. the current market valuation (0.6x). Our valuations for our sector
coverage now apply a FMCC of 8.0% across the board rather than company-specific FMCCs (e.g. 8.5% previously
for Daimler). As a result of this, our 12-month price target increases slightly to 87 (from 86), implying 17%
upside. The stock currently trades at 8.4x 2016E P/E, a 3% premium to the OEM coverage group and 10%
discount to closest peer BMW.
60
Dec-14
380
Mar-15
Daimler AG (L)

Absolute
Jun-15
Sep-15
3 month
1.5
1.8
6 month 12 month
(11.8)
9.3
(1.9)
5.6
Key risks
Cyclical pressure in NAFTA trucks, weaker product demand weighing on volumes/pricing, China end-market
weakness, higher cost headwinds (CO2 compliance costs/expansion costs), and adverse currency (stronger
EUR).
25
December 16, 2015
Europe: Automobiles
Daimler in six charts

Exhibit 29: Daimler looks fundamentally well
positioned
Exhibit 30: Unit sales to continue to grind

higher
Unit sales (k), consolidated vs. China at-equity
100%
BMW
Growth score
75%
Exhibit 31: Strong FCF underpinning dividend

FCF ( mn) and dividend yield
2,500
12,000
7%
2,000
10,000
6%
Hella
Faurecia
GKN
Volkswagen
Autoliv
Continental
50%
Michelin
FCA
Valeo
25%
CNH
Industrial
Daimler
5%
8,000
1,500
4%
6,000
3%
1,000
4,000
Nokian
Volvo
2%
500
2,000
1%
Peugeot
Consolidated volumes
Free cash flow
2020E
2014
2013
2012
-2,000
JV China production
2019E
100%
2018E
75%
2017E
50%
Structural score
2016E
25%
2015E
0%
2011
Renault
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
0%
-1%
Div yield

Research.

Research.
Exhibit 32: Product momentum continues at

Mercedes
Exhibit 33: Shares yet to reflect earnings

upgrades
Exhibit 34: Value opportunity at these ROIC

levels
Consensus EBIT ( mn) and share price ()

performance
Daimler ROIC vs. share price-implied ROIC

140
16,000
CLA
A-Class
S-Class
5
GLA
GLE Coupe/
GLC
14,000
B-Class
E-Class
14%
60
GLB
Mercedes brand
Smart

Research.
2015
GSe 2015
Perf v SXAP
2016
GSe 2016
10%
6%
20
4%
2%
Dec 15
Aug 15
Apr 15
Dec 14
Aug 14
Apr 14
2019E
2018E
2017E
2016E
2015E
Daimler Group
Dec 13
8,000
12%
8%
40
2014
100
80
10,000
2013
16%
12,000
C-Class
18%
120
2017
GSe 2017

Research, Datastream
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
ROIC
Implied ROIC

Research.
26
December 16, 2015
Europe: Automobiles
Daimler Summary Financials

Exhibit 35: Daimler financial summary
m
P&L
2015E
2016E
2017E
2018E
2019E
2020E
147,508
-5,294
18,603
152,502
-5,506
19,222
152,440
-6,044
20,491
155,013
-6,513
21,579
160,862
-6,961
22,156
164,061
-7,362
22,058
EBIT
Financial Result
13,309
520
-70
13,716
700
-40
14,447
670
-10
15,066
700
20
15,195
770
50
14,697
770
80
Pre-tax
Tax
Minority Interest
Net Income
13,409
-4,000
-300
9,034
14,026
-4,208
-300
9,518
14,757
-4,427
-300
10,030
15,436
-4,631
-300
10,505
15,665
-4,699
-300
10,665
15,197
-4,559
-300
10,338
8.51
3.25
8.90
4.00
9.38
4.50
9.82
4.50
9.97
4.50
9.66
4.50
Revenues
EBITDA
EPS
DPS
m
Balance Sheet
Current Assets
Fixed Assets
Total Assets
Current Liabilities
Equity
Minority Interests
ROIC
Revenue
NOPLAT
ROIC
NOPLAT Margin (%)
Cash Flow
Net income
Asset Turn
WACC
EV/IC:ROIC/WACC
2015E
2016E
2017E
2018E
2019E
2020E
96,929
100,803
104,087
107,355
110,905
114,194
22,717
210,877
81,503
22,947
217,075
81,363
23,389
222,985
81,223
23,712
228,840
81,083
23,837
234,849
80,936
23,812
240,527
80,786
78,077
51,297
1219
78,077
57,636
1519
78,077
63,685
1819
78,077
69,680
2119
78,077
75,836
2419
78,077
81,664
2719
147,508
9,435
152,502
9,663
152,440
10,149
155,013
10,587
160,862
10,706
164,061
10,345
60,443
15.6%
6.4%
63,765
15.2%
6.3%
67,773
15.0%
6.7%
71,913
14.7%
6.8%
75,981
14.1%
6.7%
79,966
12.9%
6.3%
2.4x
8.0%
0.7x
2.4x
8.0%
0.7x
2.2x
8.0%
0.7x
2.2x
8.0%
0.7x
2.1x
8.0%
0.7x
2.1x
8.0%
0.7x
1.3x
80,147
86,602
1.3x
84,553
92,981
1.3x
88,802
98,815
1.3x
92,640
104,220
1.2x
93,679
107,096
1.1x
90,521
105,507
1,070
81
1,070
87
1,070
92
1,070
97
1,070
100
1,070
99
9,109
5,294
9,518
5,506
10,030
6,044
10,505
6,513
10,665
6,961
10,338
7,362
Operating Cash Flow

Working Capital
13,473
-190
14,204
-420
15,254
-420
16,198
-420
16,806
-440
16,879
-450

less Capex
Other Investing
13,283
-6,735
-1,507
13,784
-7,824
-206
14,834
-8,662
-8
15,778
-9,095
-5
16,366
-9,416
-4
16,429
-9,745
-5
Investing Cash Flow

Free Cash Flow
Share Buyback
Dividends
-8,242
5,041
0
-2,621
-8,030
5,754
0
-3,480
-8,670
6,164
0
-4,280
-9,100
6,678
0
-4,810
-9,420
6,946
0
-4,810
-9,750
6,679
0
-4,810
Other Financing
Financing Cash Flow
0
-2,621
0
-3,480
0
-4,280
0
-4,810
0
-4,810
0
-4,810
Valuation
EV/Sales
Target EV/Sales
EV/EBIT
68%
65%
6.6x
60%
62%
5.9x
59%
61%
5.4x
57%
59%
5.0x
-18,373
-0.4x
-1,420
-20,648
-0.4x
-2,274
-22,532
-0.4x
-1,884
-24,400
-0.4x
-1,868
-26,536
-0.3x
-2,136
-28,405
-0.3x
-1,869
Target EV/EBIT
P/E
Target P/E
6.3x
9.9x
10.0x
6.1x
9.4x
9.4x
5.6x
8.7x
8.8x
5.2x
8.4x
8.5x
Net Debt (Cash)

EV/IC
Implied EV
Number of Shares
27
December 16, 2015
Europe: Automobiles
Daimler summary financials (contd.)

Exhibit 36: Daimler financial summary
2015E
2016E
2017E
2018E
2020E
91,881
39,524
93,178
41,094
Quarterly EBIT (underlying)

1Q
2Q
2,930
3,784
20,050
11,520
4,563
20,950
11,650
4,700
21,190
11,760
4,841
3Q
4Q
3,657
3,459
-7,412
152,440
0.0%
-7,539
155,013
1.7%
-7,842
160,862
3.8%
-8,002
164,061
2.0%
9,050
9,650
10,100
10,200
9,600

1Q
2,800
1,650
2,767
1,600
2,867
1,600
3,027
1,600
3,167
1,600
3,267
1,600
2Q
3Q
850
230
-100
900
230
-131
900
250
-150
900
270
-131
900
270
-172
900
270
-170
Group
Income (loss) from investments
13,829
520
14,416
700
15,117
670
15,766
700
15,965
770
15,467
770
GS EBIT
13,309
13,716
14,447
15,066
15,195
14,697
EBIT margin
Mercedes
Trucks
10.1%
7.5%
10.3%
7.6%
11.1%
7.6%
11.4%
8.0%
11.1%
8.0%
10.3%
7.9%
Financial Services
Van
Bus
8.6%
4.4%
2.1%
8.0%
4.5%
2.1%
8.2%
4.6%
2.2%
8.0%
4.5%
2.3%
7.6%
4.3%
2.3%
Reconciliation
EBIT margin
1.4%
9.4%
1.8%
9.5%
2.0%
9.9%
1.7%
10.2%
2.2%
9.9%
Revenue by division
Mercedes
Trucks
83,418
37,224
88,103
36,450
86,588
37,804
88,401
38,018
Financial Services
Van
Bus
19,190
10,698
4,176
20,030
11,060
4,301
19,610
11,420
4,430
-7,198
147,508
13.6%
-7,442
152,502
3.4%
EBIT by division
Mercedes
8,400
Trucks
Financial Services
Reconciliation
Group
% growth
Van
Bus
Reconciliation
2019E
Total
2015E
2016E
2017E
2018E
2019E
2020E
13,829
8.6%
10.1%
9.8%
4Q
Total
9.0%
9.4%
Mercedes EBIT Walk

Margin, %
5,964
8.1%
8,400
10.1%
9,050
10.3%
9,650
11.1%
10,100
11.4%
10,200
11.1%
7.6%
4.2%
2.3%
Volume
Mix
1,851
-521
617
126
-593
88
239
-37
848
-122
-44
59
2.1%
9.4%
Pricing
FX
800
400
50
298
0
1,530
0
840
0
40
0
0
-93
8,400
10.1%
-441
9,050
10.3%
-425
9,650
11.1%
-592
10,100
11.4%
-667
10,200
11.1%
-614
9,600
10.3%
Other cost changes

Operating profit this year
Margin, %
28
December 16, 2015
Europe: Automobiles
Fiat Chrysler (FCHA.MI): Delivering on growth; plus substantial optionality; CL-Buy

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
Percentile
20th
40th
60th
80th
100th
Fiat Chrysler Automobiles NV (FCHA.MI)


Key data
Current
Price ()
FCAU Price ($)
FCAU 12 month price target ($)
Market cap ( mn)
12/14
EPS () New
0.81
EPS () Old
0.81
FCAU EPS () New
0.81
FCAU EPS () Old
0.81
P/E (X)
9.8
FCAU P/E (X)
9.8
EV/EBITDA (X)
3.2
Dividend yield (%)
0.0
CROCI (%)
12.3
12.48
18.00
44
13.60
19.60
18,851.5
34,230.7
12/17E
2.37
2.54
2.37
2.54
5.3
5.2
2.5
0.0
11.8
12/15E
1.22
1.13
1.22
1.13
10.2
10.1
3.3
0.0
13.7
12/16E
1.37
1.70
1.37
1.70
9.1
9.0
3.1
0.0
11.5

16
520
15
500
14
480
13
460
12
440
11
420
10
400
9
Dec-14
380
Mar-15
Jun-15
Sep-15
Fiat Chrysler Automobiles NV (L)

Absolute
3 month
(2.7)
(2.4)
6 month 12 month
(11.2)
35.8
(1.2)
31.2
We believe FCAs attractiveness stems from its dual streams of value creation: the operational and the structural.
The scene has been set with the successful IPO of Ferrari, which seems to have resolved the debate about the
units valuation (important given its lack of direct peers) and readied the market for the spin-off of the remaining
Ferrari shares to FCA shareholders in January. The result is a cleaner and more acquirable core FCA, in our view.
On an ex-Ferrari basis, we adjust our 2016-18 EBIT by -1%/+2%/+11%, reflecting more positive NAFTA margin
development, offset by APAC region and Maserati profitability.
The operational value creation story hinges on improving FCAs profitability in NAFTA, supported by new
product momentum driven by new Jeep launches, which should in turn support better mix. Steady
improvement in other regions (EMEA, APAC) should help underpin EBIT growth.
The structural story turns next to FCAs non-core supplier businesses (Magneti, Teksid, Comau), which CEO
Marchionne has expressed the will to spin-off or otherwise dispose of. Collectively, we value these at 2.9bn
(~30% 2016E sales) in our SOTP. We see further upside risk should FCAs publicly expressed merger
intentions come to fruition, either via GM (as mooted by CEO Marchionne) or another partner.
Catalyst
The spinoff of Ferrari shares to FCA shareholders takes place in Jan: as this approaches, we expect the market to
focus more closely on FCA ex-Ferraris valuation. We see significant value on a GAAP basis vs. US peers (FCA
ex-Ferrari trades on 2.5x 2016E EV/EBITDAP (arrived at by stripping out from FCA the value of the Ferrari EV, and
P&L contribution) vs 3.0x at GM and Ford), and a superior growth profile: on our forecasts, it has the highest
EPS CAGR in the OEM space, at 23% 2015-19, driven by operational improvement and deleveraging.
Furthermore, we still to view FCA as the key strategic asset in an autos space that looks set for consolidation.
Valuation
We base our 12-month price target on: a) ROIC methodology (85% weight) on a 2016E ROIC of 7.0%; and b) M&A
weighting (15%) derived from our SOTP valuation. We assume 0.8x EV/IC equals ROIC/FMCC (previously 1.0x),
implying a modest de-rating vs. current market valuation (at 0.9x). Our valuations for our sector coverage now
apply a FMCC of 8.0% across the board rather than company-specific FMCCs (e.g. 9.9% previously for FCA). As a
result, our 12-month price targets increase to 18.0 (FCHA.MI) and $19.6 (FCAU) (from 15.9/$17.7), implying
44% upside. The stock currently trades at a 9.0x 2016E P/E, a 12% premium to the OEM coverage group.
Key risks:
(1) End-market deterioration; (2) further recalls in the US; (3) inability to price for competitive or regulatory
add-on product content; (4) any strengthening of the euro/US dollar; (5) deterioration in the risk appetite of
equity markets; (6) key man risk regarding CEO Sergio Marchionne; (7) selling pressure post Ferrari-spinoff.
29
December 16, 2015
Europe: Automobiles
Fiat Chrysler in six charts

Exhibit 37: FCA is a well-positioned European
OEM
Exhibit 38: with multiple EBIT streams
Exhibit 39: We forecast capex to peak in

2017
mn, 2015E (reported)
mn
6,000
100%
5,000
BMW
4,000
Hella
Michelin
FCA
CNH
Industrial
2,000
Nokian
7%
8,000
6%
7,000
6,000
5%
5,000
4%
Capex
Plan target
2020E
2019E
2018E
2017E
2016E
2015E
2014
Total
Other
2013
100%
2012
75%
2011
50%
Structural score
Maserati
Renault
Ferrari
NAFTA
0%
25%
8%
9,000
1,000
Volvo
Peugeot
0%
5,100
4,495
4,357
Mass market
25%
9%
10,000
3,000
EMEA
Valeo
Daimler
Continental
50%
11,000
mn
Autoliv
APAC
GKN
Volkswagen
LatAm
Faurecia
48
100
10%
mn
Growth score
75%
-62
496
152
12,000
as % of sales

Research.

Research.
Exhibit 40: and FCA to have net cash of

~7bn by 2020E
Exhibit 41: Product momentum remains

strong
Exhibit 42: We forecast a sharp increase in

returns
Adjusted FCA net debt walk (chg. 2014-20E)
FCA ROIC vs. share price-implied ROIC
100
8
bn
40
-18.1
Jeep
Cherokee
Ram 1500
9%
Fiat Panda
RAM
2500/3500
-52.7
20

Research.
4
3
6%
3%
0%
Fiat Group
Fiat brand
2018E
2017E
Net debt (2020E)
Other
Capital structure
Capex + R&D
Other operating items
Working capital
EBITDA
Net debt (2014)
-20
2016E
6.9
2015E
1.7
2014
-1.3
-7.7
Jeep
Grand
Cherokee /
Fiat 500
2013
Alfa Romeo
Guilia
Chrysler
Town
& Country
7
6
82.2
AR Guilietta
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
2.8
60
12%
Fiat Linea
2019E
80
Jeep brand

Research, IHS Global Insight
-3%
ROIC
Implied ROIC

Research.
30
December 16, 2015
Europe: Automobiles
Fiat Chrysler Summary Financials

Exhibit 43: FCA financial summary
m
P&L
Revenues
2015E
2016E
2017E
2018E
2019E
2020E
m
Balance Sheet
2015E
2016E
2017E
2018E
2019E
2020E
Current Assets
Fixed Assets
Total Assets
46,522
29,521
102,586
47,277
32,200
106,135
48,496
34,601
110,257
51,557
35,276
114,542
54,829
36,115
119,267
58,277
37,037
124,297
43,111
44,796
14,679
43,984
45,286
16,865
44,154
45,286
20,817
44,234
45,286
25,022
44,264
45,286
29,717
44,294
45,286
34,717
112,452
2,600
46,566
5.6%
117,461
3,213
46,139
7.0%
126,282
4,495
48,230
9.3%
126,635
4,742
49,855
9.5%
131,228
5,002
50,958
9.8%
135,009
5,134
52,321
9.8%
2.3%
2.4x
8.0%
1.0x
0.7x
32,431
17,076
1,511
11.3
2.7%
2.5x
8.0%
0.8x
0.7x
32,134
24,864
1,511
16.5
3.6%
2.6x
8.0%
0.6x
0.7x
33,589
27,839
1,511
18.4
3.7%
2.5x
8.0%
0.6x
0.7x
34,721
32,172
1,511
21.3
3.8%
2.6x
8.0%
0.6x
0.7x
35,490
36,282
1,511
24.0
3.8%
2.6x
8.0%
0.6x
0.7x
36,439
40,749
1,511
27.0
45%
54%
4.7x
5.7x
8.0x
9.3x
43%
53%
4.4x
5.4x
7.6x
8.9x
112,452
117,461
126,282
126,635
131,228
135,009

EBITDA
EBIT
-5,930
10,872
4,942
-6,483
11,799
5,316
-6,969
13,730
6,761
-7,424
14,134
6,711
-7,553
14,600
7,047
-7,712
14,914
7,202
Financial Result
Pre-tax
158
-2,473
2,627
284
-2,000
3,600
340
-1,600
5,500
389
-1,300
5,800
453
-1,000
6,500
498
-800
6,900
Tax
Minority Interest
Net Income
EPS
-734
-50
714
1.22
-1,534
0
2,208
1.37
-1,925
0
3,575
2.37
-2,030
0
3,770
2.49
-2,275
0
4,225
2.80
-2,415
0
4,485
2.97
DPS
0.00
0.00
0.00
0.00
0.00
0.00
Cash Flow
Net income
Operating Cash Flow
Working Capital
1,842
5,930
9,171
900
10,071
2,066
6,483
9,191
900
10,091
3,575
6,969
10,544
500
11,044
3,770
7,424
11,193
250
11,443
4,225
7,553
11,778
100
11,878
4,485
7,712
12,197
100
12,297
less Capex
Other Investing
Investing Cash Flow
Free Cash Flow
-9,043
-333
-9,377
694
-9,162
-331
-9,493
598
-9,370
-161
-9,531
1,513
-8,098
-161
-8,260
3,184
-8,392
-161
-8,553
3,325
-8,634
-161
-8,795
3,502
0
0
835
835
0
0
700
700
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6,106
4,751
3,202
-29
-3,371
-6,889
0.4x
-1,548
0.3x
-1,356
0.2x
-1,549
0.0x
-3,231
-0.1x
-3,342
-0.2x
-3,519
Share Buyback
Dividends
Other Financing
Financing Cash Flow
Net Debt (Cash)
Current Liabilities
Equity
Minority Interests
363
ROIC
Revenue
NOPLAT
ROIC
NOPLAT Margin (%)
Asset Turn
WACC
EV/IC:ROIC/WACC
EV/IC
Implied EV
Number of Shares
M&A value
M&A probability
Price target
27.0
15%
18.0
Valuation
EV/Sales
Target EV/Sales
EV/EBIT
Target EV/EBIT
P/E
Target P/E
54%
59%
6.0x
6.5x
8.8x
10.2x
46%
55%
5.1x
6.2x
8.4x
9.8x
31
December 16, 2015
Europe: Automobiles
Fiat Chrysler Summary Financials (contd.)

Exhibit 44: FCA financial summary
m
Revenue by division
NAFTA
LATAM
APAC
EMEA
Mass Market
Luxury and Performance Brands
Components and Production Systems
Other/eliminations
Total
% growth
2015E
2016E
2017E
2018E
2019E
2020E
68,815
6,937
5,726
20,396
101,874
5,047
9,387
-3,855
112,452
71,905
5,694
9,770
21,399
108,768
2,878
9,878
-4,063
117,461
76,674
5,869
11,902
22,478
116,922
3,415
10,375
-4,431
126,282
73,886
6,277
13,153
23,436
116,752
3,427
10,900
-4,445
126,635
72,631
6,737
14,920
26,695
120,983
3,427
11,455
-4,637
131,228
74,105
6,984
16,154
27,093
124,336
3,427
12,040
-4,794
135,009
17.0%
4.5%
7.5%
0.3%
3.6%
2.9%
4,357
-62
48
152
4,495
596
367
-358
5,100
4,675
31
274
407
5,387
166
400
-353
5,600
5,473
186
442
655
6,755
220
434
-308
7,100
5,154
367
490
717
6,729
221
470
-320
7,100
5,187
459
568
915
7,130
221
508
-358
7,500
5,408
509
587
822
7,325
221
547
-394
7,700
58.2%
9.8%
26.8%
0.0%
5.6%
2.7%
6.3%
-0.9%
0.8%
0.7%
4.4%
11.8%
3.9%
9.3%
4.5%
6.5%
0.5%
2.8%
1.9%
5.0%
5.8%
4.0%
8.7%
4.8%
7.1%
3.2%
3.7%
2.9%
5.8%
6.4%
4.2%
7.0%
5.6%
7.0%
5.9%
3.7%
3.1%
5.8%
6.4%
4.3%
7.2%
5.6%
7.1%
6.8%
3.8%
3.4%
5.9%
6.4%
4.4%
7.7%
5.7%
7.3%
7.3%
3.6%
3.0%
5.9%
6.4%
4.5%
8.2%
5.7%
EBIT by division (reported)

NAFTA
LATAM
APAC
EMEA
Mass Market
Other/eliminations
Total
% growth
2016E
2017E
2018E
2019E
2020E
2,252
1,064
1,196
-1,270
-170
0
807
616
4,495
4.4%
-1,068
596
367
-358
5,100
4,495
210
200
100
0
0
383
0
5,387
5.0%
142
166
400
-353
5,600
5,387
1,247
100
0
0
0
20
0
6,755
5.8%
0
220
434
-308
7,100
6,755
-185
400
0
-100
0
-141
0
6,729
5.8%
0
221
470
-320
7,100
6,729
416
300
-200
-100
0
-15
0
7,130
5.9%
0
221
508
-358
7,500
7,130
300
0
-100
-50
0
45
0
7,325
5.9%
0
221
547
-394
7,700
Margin, %
Group EBIT (underlying)
4.5%
4,942
4.8%
5,316
5.6%
6,761
5.6%
6,711
5.7%
7,047
5.7%
7,202
Margin, %
4.5%
4.8%
5.6%
5.6%
5.7%
5.7%
1Q
2Q
3Q
4Q
Total
2015E
792
1,348
360
1,472
3,972
EBIT margin by division

NAFTA
LATAM
APAC
EMEA
Mass Market
Other/eliminations
Total
m
Quarterly EBIT (underlying)
1Q
2Q
3Q
4Q
Total
3.0%
4.6%
1.3%
5.0%
3.5%
Mass market EBIT Walk

Mass market EBIT (previous year)
Volume/mix
Net price
Industrial costs
SG&A
CO2 costs
Investments/FX/Others
Unusual items
Mass market EBIT (current year)
Margin,%
Unusual items
Other
Group EBIT (reported)
32
December 16, 2015
Europe: Automobiles
Peugeot (PEUP.PA): Steady operational progress with strategic optionality; Buy

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Peugeot (PEUP.PA)

Key data
Current
Price ()
Market cap ( mn)
15.80
18.80
19
12,654.9
12,599.1
12/17E
56,934.9
0.2
3,017.0
0.5
2.21
2.27
2.1
7.2
0.0
8.8
6.7
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
53,607.0
0.0
905.0
0.0
(0.07)
(0.07)
2.3
NM
0.0
23.2
4.6
12/15E
55,449.8
0.9
2,689.1
0.4
2.12
2.16
2.5
7.4
0.0
4.6
5.4
12/16E
55,714.6
1.1
2,771.2
2.2
2.13
2.05
2.3
7.4
0.0
8.3
6.6

20
560
18
530
16
500
14
470
12
440
10
410
8
Dec-14
380
Mar-15
Jun-15
Peugeot (L)

Absolute
PSA shares have outperformed the OEM in our sector coverage this year to date (up 55% vs19% for the OEM)
buoyed by the European macro recovery and strong operational execution, but we think achieving a similar
performance in 2016 would be challenging. We continue to expect 2016 to be a transition year for PSA, with
fewer new launches and the low hanging fruit already picked in terms of a cost-savings potential. Management
may surprise in 1Q 2016, when we expect to receive an update on the targets laid out in April 2014 as part of
Back in the Race. However, until such time, we see no further potential for EBIT margin expansion in the Auto
business in 2016 vs 2015 (we estimate margins of 4.6% for both years), and we forecast ROIC to remain flat at
11.3% in 2016.
Catalyst
In our view, the PSA investment case is increasingly predicated on strategic optionality rather than operational
improvement. We continue to believe PSA would be a more attractive M&A target than most of its OEM peers in
our coverage (except FCA), a segment that looks poised for consolidation, which we believe would improve
industry return on capital in the face of building cost headwinds. We also see the potential for PSA to unlock
structural value via a Faurecia disposal (as discussed in Focus on Europe and restructuring amid slowing China,
June 23, 2015, and first detailed in Backing the plan, May 1, 2014)
Valuation
Our valuation methodology reflects our view that the upside case for PSA shares is increasingly reliant on M&A.
We continue to base our price target on two components: 1) a ROIC methodology (85% weight) and 2) a 15%
M&A weighting based on our SOTP valuation. Our ROIC-based value of 17.6 implies 10% upside potential to
the current share price. Our SOTP-based value of 26.1 accounts for the remainder of the 19% upside implied by
our 12-month price target. We assume 0.55x EV/IC equals ROIC/FMCC (previously 0.6x), implying a modest
re-rating vs. the current market valuation (0.5x). Our valuations for our sector coverage now apply a FMCC of
8.0% across the board, rather than company-specific FMCCs (e.g. 9.4% previously for PSA).
As a result of this change, our 12-month price target increases to 18.8 (from 17.8), implying 19% upside. The
stock currently trades at a 7.4x 2016E P/E, at a 9% discount to the OEM coverage group.
Sep-15
3 month
0.8
1.1
6 month 12 month
(15.6)
57.0
(6.1)
51.7
Key risks
Diesel fall-out, sharp decline in European and/or global volumes, China profit declines on volumes/pricing,
currency (particularly weaker sterling), and execution risk on restructuring.
33
December 16, 2015
Europe: Automobiles
Peugeot in six charts

Exhibit 45: We see PSA as a poorly-positioned
European OEM
Exhibit 46: Yet turnaround continues to help

margins
Exhibit 47: We expect cost savings and better

volume/mix
Automotive margins (%)
Auto EBIT walk 2015-20E
6%
100%
3,200
2,400
4%
Hella
50%
75%
Other
R&D
EBIT (2019E)
0%
SG&A
-2%
Renault
25%
1,780
0
Input costs
Volvo
Peugeot
0%
94
Production &
procurement
CNH
Industrial
68
0%
Nokian
Price
Valeo
-58
FX
800 1,750
Michelin
FCA
25%
2%
Mix
Daimler
Continental
1,500
-1,046
1,600
Volume
Autoliv
GKN
50%
-792
400
Volkswagen
EBIT (2015)
Faurecia
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
Growth score
75%
mn
150 -288
BMW
-4%
100%
Automotive EBIT margin
Structural score

Research.

Research.
Exhibit 48: driving an improvement in FCF

generation
Exhibit 49: Product momentum slowing
Exhibit 50: We forecast a sharp increase in

returns
FCF progression
PSA ROIC vs. share price-implied ROIC
3,000
2,000
16%
Peugeot 307
Citroen C3
1,000
mn
Peugeot 208
Peugeot
2008
Peugeot 407
Citroen C4
Peugeot
3008
Peugeot 207
14%
12%
Peugeot 508
2020E
2019E
2018E
2017E
2016E
2014
2013
2015E
-1,000
2012
2011
6%
Peugeot 107
10%
8%
Citroen C3
Peugeot 408
4%
2%
Changes in working capital

Research.
PSA group
Citroen brand
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
-3,000
2002
2001
Peugeot brand

-2%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
0%
-2,000
-4%
ROIC
Implied ROIC

Research.
34
December 16, 2015
Europe: Automobiles
Peugeot Summary Financials

Exhibit 51: PSA financial summary
m
P&L
Revenues
2015E
2016E
2017E
2018E
2019E
2020E
2015E
2016E
2017E
2018E
2019E
2020E
Balance Sheet
Current Assets
Fixed Assets
42,180
10,630
44,469
10,431
45,991
10,529
47,378
10,793
49,026
11,080
50,352
11,307
Total Assets
Current Liabilities
63,250
39,437
66,140
39,477
68,680
39,664
71,234
39,781
74,098
40,143
76,570
40,244
10,938
10,738
10,788
10,838
10,888
10,938
Equity
Minority Interests
12,875
1374
15,924
1686
18,228
2029
20,615
2407
23,068
2814
25,389
3236
ROIC
Revenue
NOPLAT
55,450
1,887
55,715
1,872
56,935
1,968
57,705
2,044
60,076
2,118
60,737
2,024
16,958
16,515
17,003
18,047
19,318
20,552
ROIC
NOPLAT Margin (%)
Asset Turn
11.1%
3.4%
3.3x
11.3%
3.4%
3.4x
11.6%
3.5%
3.3x
11.3%
3.5%
3.2x
11.0%
3.5%
3.1x
9.8%
3.3%
3.0x
WACC
EV/IC:ROIC/WACC
8.0%
0.6x
8.0%
0.6x
8.0%
0.5x
8.0%
0.6x
8.0%
0.6x
8.0%
0.6x
55,450
-2,452
55,715
-2,394
56,935
-2,218
57,705
-2,084
60,076
-2,116
60,737
-2,181
EBITDA
5,141
5,165
5,235
5,198
5,371
5,308
EBIT
Financial Result
2,689
549
-500
2,771
593
-300
3,017
593
-300
3,114
581
-200
3,256
567
-200
3,127
539
-200
Pre-tax
Tax
2,528
-600
2,854
-730
3,100
-811
3,285
-876
3,413
-923
3,256
-880
Minority Interest
Net Income
-227
1,202
-313
1,762
-343
1,896
-378
1,982
-407
2,033
-422
1,903
2.12
0.00
2.13
0.00
2.21
0.00
2.31
0.00
2.37
0.00
2.22
0.00
EPS
DPS
Cash Flow
Net income
1,702
2,452
1,812
2,394
1,946
2,218
2,032
2,084
2,083
2,116
1,953
2,181
EV/IC
Implied EV
0.8x
13,212
0.8x
12,867
0.8x
13,247
0.8x
14,061
0.8x
15,051
0.8x
16,013
Operating Cash Flow

Working Capital
2,762
437
3,784
37
4,062
184
4,078
-108
4,223
-51
4,211
-55

Number of Shares
14,305
814
15,170
864
16,731
893
18,332
893
20,152
893
21,863
893
17.6
18.7
20.5
22.6
24.5
3,199
3,821
4,245
3,970
4,172
4,156
less Capex
Other Investing
-2,548
0
-2,561
0
-2,845
0
-2,889
0
-3,005
0
-3,038
0
M&A value
M&A probability
26.1
15%
Investing Cash Flow

Free Cash Flow
-2,548
651
-2,561
1,260
-2,845
1,401
-2,889
1,080
-3,005
1,167
-3,038
1,118
Price target
18.8
250
860
520
454
0
65
0
27
0
13
0
-4
Valuation
-81
1,029
0
974
0
65
0
27
0
13
0
-4
EV/Sales
Target EV/Sales
26%
38%
22%
29%
19%
26%
17%
23%
Net Debt (Cash)
-2,286
-4,578
-6,102
-7,268
-8,505
-9,677
EV/EBIT
Target EV/EBIT
5.8x
8.6x
4.9x
6.5x
3.6x
4.9x
3.2x
4.4x

-0.2x
-1,738
-0.3x
-2,293
-0.3x
-1,524
-0.4x
-1,165
-0.4x
-1,237
-0.4x
-1,172
P/E
Target P/E
10.2x
14.8x
9.1x
13.2x
5.3x
7.6x
5.0x
7.2x
Share Buyback
Dividends
Other Financing
Financing Cash Flow
17.6
Source: Company data, Goldman Sachs Global Investment Research. * Net Income in P&L excludes minority interest
35
December 16, 2015
Europe: Automobiles
Peugeot Summary Financials (contd.)

Exhibit 52: PSA financial summary *Net Income in P&L excludes minority interest
m
Revenue by division
Automotive
Faurecia
Financial services
Other
Total
% growth
EBIT by division
Automotive
Faurecia
Financial services
Other
Total
% growth
Automotive
Faurecia
Financial services
Other
Total
2015E
2016E
2017E
2018E
2019E
2020E
37,670
20,810
0
-3,030
55,450
3%
36,850
21,905
0
-3,040
55,715
0%
37,480
22,565
0
-3,110
56,935
2%
37,560
23,285
0
-3,140
57,705
1%
39,100
24,246
0
-3,270
60,076
4%
39,270
24,777
0
-3,310
60,737
1%
1,750
890
0
49
2,689
197%
1,700
1,020
0
51
2,771
3%
1,880
1,084
0
53
3,017
9%
1,890
1,170
0
54
3,114
3%
1,950
1,250
0
56
3,256
5%
1,780
1,290
0
57
3,127
-4%
4.6%
4.3%
4.6%
4.7%
5.0%
4.8%
5.0%
5.0%
5.0%
5.2%
4.5%
5.2%
-1.6%
4.8%
-1.7%
5.0%
-1.7%
5.3%
5.4%
5.4%
5.1%
m
Half-yearly EBIT (underlying)
1H
2H
Total
2015E
2016E
2017E
2018E
2019E
2020E
1,424
1,265
2,689
Half-yearly EBIT margin

1H
2H
Total
4.9%
4.8%
4.8%
Auto EBIT Walk

EBIT previous year
Margin, %
63
0.2%
1,750
4.6%
1,700
4.6%
1,880
5.0%
1,890
5.0%
1,950
5.0%
100
28
216
238
44
600
300
60
101
-70
-186
-75
-68
138
300
150
-47
-192
120
-217
3
0
94
300
0
-172
52
-10
-212
33
0
0
300
0
-21
-79
250
-218
45
0
0
300
0
-45
-272
110
-213
-63
0
0
300
0
-3
-301
1,750
4.6%
1,700
4.6%
1,880
5.0%
1,890
5.0%
1,950
5.0%
1,780
4.5%
Volume
Price
Mix
FX
Input costs
Production & procurement
SG&A
R&D
Other
EBIT current year
Margin, %
36
December 16, 2015
Europe: Automobiles
Volkswagen (VOWG_p.DE): Many questions unanswered on the road to redemption; Sell

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Volkswagen (VOWG_p.DE)

Key data
Current
Price ()
Market cap ( mn)
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
202,458.0
0.0
12,697.0
0.0
21.84
21.84
5.9
8.4
2.7
4.8
9.7
12/15E
216,310.8
2.1
12,693.6
0.7
12.12
8.78
4.1
10.6
1.9
10.4
8.5
12/16E
209,077.9
(0.8)
10,900.3
(13.5)
18.47
20.31
4.0
7.0
1.9
(0.2)
9.1
128.55
129.00
0
67,102.4
69,785.6
12/17E
218,094.4
(1.5)
12,849.4
(13.8)
20.84
23.55
3.3
6.2
2.4
10.2
9.5

260
240
220
200
180
160
140
120
100
80
Dec-14
560
540
520
500
480
460
440
420
400
380
Mar-15
Volkswagen (L)

Absolute
Jun-15
Sep-15
3 month
(23.5)
(23.2)
6 month 12 month
(40.7)
(31.1)
(34.0)
(33.4)
Newsflow from VW in the past month has been positive and has seen the shares rise 34%: on November 23, the
company agreed simple fixes for 90% of its European NOx issue affected cars, and, on December 9, announced
that the CO2 irregularities applied to 36k units vs. 800k as previously estimated. Moreover, chairman Poetsch
has now dismissed the notion that asset disposals would be required as highly unlikely. In our framework for
assessing VWs liabilities (see, A long and bumpy road to redemption, published October 19, 2015), we have
revised down our estimates of VWs ex-US recall costs from 5.5bn to 1.5bn, based on the above.
However, challenges remain for VW, and these are now concentrated in North America. A fix is yet to be agreed
for 492k units, a proportion of which may require costly hardware fixes, and fines for air violations have yet to
be levied; there is unlikely to be clarity on either issue until 2016. The amount of customer compensation and the
question of whether the DoJ could levy criminal charges could remain unresolved beyond 2016. The ongoing
operational impact at VW remains a question mark: while management sounded a confident tone on volumes
and inventories, it is too soon to be able to determine whether VWs market share will be meaningfully impaired
beyond temporary sales outages from type approval suspension and deferred fleet purchases.
Catalyst
We lower our 2015-17E EBIT by -1%/-13%/-14%, reflecting additional emissions-scandal-related costs and
negative pricing. We halve our estimates for 2015E and 2016E dividends to reflect the risk that VW cuts dividend
altogether. We also believe uncertainty will continue to weigh on shares, owing to the possible emergence of
considerable potential liabilities likely remain impossible (in some cases) to quantify for months or even years.
Valuation
We value VW on the average of 2016-17E ROIC (vs. 2016E for OEM peers) to reflect that 2016E earnings might be
impacted by production interruptions and one-offs that market may be prepared partially to look through. We
assume 0.8x EV/IC equals ROIC/FMCC, a slight re-rating vs. current market valuation (at 0.6x). We use FMCC of
10.0% (vs. 10.9%), 200bp above our base FMCC (8% average for sector) to reflect ongoing uncertainty around
legal and product-related costs. Hence, our new 12-month price target is 129 (from 100) implying 0% upside.
VW currently trades at 7.0x 2016E P/E, a 14% discount to the OEM coverage group. Our 2016/17 EBIT estimates
are substantially (average 18%) above Reuters consensus estimates predominantly due, in our view, to noncomparable treatment of forthcoming legal and other costs.
Key risks:
Key upside risks: less negative emissions-scandal-related fallout than expected, improving view of legal risks
(e.g. prompt resolution of VW investigation with limited financial penalties), improving underlying operating
profitability, lower fixed costs or investment levels or 2) higher product cost savings.
37
December 16, 2015
Europe: Automobiles
Volkswagen in six charts

Exhibit 53: Despite a basically favourable
opportunity set
Exhibit 54: VW has been engulfed in

controversy
VW pref/BP since Dieselgate/Deepwater (perf.

Indexed)
Exhibit 55: VWs FCF to decline into 2016E

bn
1,200
100
100%
95
Growth score
Hella
Faurecia
GKN
85
Volkswagen
Autoliv
CNH
Industrial
25%
70
Nokian
400
65
Volvo
200
60
Peugeot
55
Renault
50%
0
2013
50
0%
25%
600
75
Michelin
FCA
Valeo
800
80
Daimler
Continental
50%
0%
1,000
90
BMW
75%
75%
T+0
100%
T+1
T+2
T+3
VW prefs (v DAX)
Structural score
T+4
T+5
2014
2015E 2016E 2017E 2018E 2019E 2020E
T+6
Automotive free cash flow ex working capital
BP (v FTSE)
Change in working capital

Research.

Research.
Exhibit 56: Product portfolio remains relatively

young
Exhibit 57: We expect VW to hold dividends

broadly flat in 2015-16E
Exhibit 58: Limited valuation upside vs. sector

average
, %
VW ROIC vs. share price-implied ROIC
A4
10%
2
4%
2%
VW brand
Audi

Research.
Dividend per share (prefs)
Payout ratio (RHS)

ROIC
2020E
2019E
2018E
2017E
2016E
2014
2015E
2013
2020E
2019E
2018E
2017E
2016E
2015E
2014
2013
2012
2011
2010
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
VW group
0%
2012
0%
0
2
6%
5%
8%
2011
A3
15%
3
2010
Polo/
Lavida/
A6
Passat
2009
Polo
Golf
2008
Sagitar/Jetta
2007
10%
Tiguan
Golf
2006
Golf
20%
2005
Tiguan
Polo
12%
Q5
14%
2004
Lavida
25%
Passat
2003
Implied ROIC

Research.
38
December 16, 2015
Europe: Automobiles
Volkswagen Summary Financials

Exhibit 59: VW financial summary
m
P&L
Revenues
2015E
216,311
-13,870
2016
209,078
-14,690
2017E
218,094
-15,620
2018E
224,325
-16,690
2019E
227,078
-17,430
2020E
232,535
-17,690
EBITDA
26,564
25,590
28,469
30,993
32,441
34,111
EBIT
Financial Result
12,694
3,964
-736
10,900
3,224
-736
12,849
2,884
-736
14,303
2,723
-736
15,011
2,605
-736
16,421
2,436
-736
Pre-tax
Tax
15,172
-2,200
12,638
-3,160
14,248
-3,562
15,540
-3,885
16,129
-4,032
17,372
-4,343
Minority Interest
Net Income
-180
12,792
-203
9,276
-224
10,462
-241
11,414
-259
11,838
-278
12,750
12.12
2.46
18.47
2.46
20.84
3.06
22.74
3.81
23.59
4.31
25.41
5.06
EPS
DPS
2015E
2016
2017E
2018E
2019E
2020E
Balance Sheet
Current Assets
Fixed Assets
145,918
47,732
144,965
49,524
154,679
50,663
166,082
50,728
178,177
50,058
191,328
49,558
Total Assets
Current Liabilities
364,591
138,922
365,677
131,858
376,149
132,972
387,057
133,854
397,716
134,422
409,327
135,260
130,314
130,314
130,314
130,314
130,314
130,314
95,355
378
103,505
581
112,862
805
122,888
1,046
132,980
1,305
143,753
1,583
ROIC
Revenue
216,311
209,078
218,094
224,325
227,078
232,535
NOPLAT
12,936
164,807
9,598
166,766
10,845
171,769
11,912
173,266
12,504
173,313
13,577
172,819
7.8%
6.0%
5.8%
4.6%
6.3%
5.0%
6.9%
5.3%
7.2%
5.5%
7.9%
5.8%
1.3x
10.0%
1.3x
10.0%
1.3x
10.0%
1.3x
10.0%
1.3x
10.0%
1.3x
10.0%
0.6x
0.5x
0.8x
0.5x
0.8x
0.5x
0.7x
0.5x
0.7x
0.5x
0.6x
0.5x
79,881
65,696
80,506
64,871
82,922
72,906
83,645
81,429
83,667
90,561
83,429
99,793
501
131
501
129
501
145
501
162
501
181
501
199
Valuation
EV/Sales
Target EV/Sales
53%
62%
50%
57%
46%
53%
43%
49%
EV/EBIT
Target EV/EBIT
10.7x
12.4x
9.7x
11.1x
8.2x
9.4x
7.7x
8.8x
7.7x
8.5x
7.5x
8.3x
6.7x
7.4x
6.6x
7.2x
Equity
Minority Interests
ROIC
NOPLAT Margin (%)
Cash Flow
Net income
12,792
13,874
9,276
14,689
10,462
15,620
11,414
16,687
11,838
17,428
12,750
17,692
Asset Turn
WACC
Operating Cash Flow

Working Capital
17,539
6,006
20,358
-5,214
22,980
-516
24,942
-138
26,031
297
27,142
8
EV/IC:ROIC/WACC
EV/IC

less Capex
23,545
-16,542
15,143
-15,261
22,464
-15,511
24,804
-15,375
26,328
-15,210
27,151
-15,422
Implied EV
Other Investing
Investing Cash Flow
3,476
-13,066
-500
-15,761
0
-15,511
0
-15,375
0
-15,210
0
-15,422
Number of Shares
Free Cash Flow

Share Buyback
10,480
1,400
-618
0
6,953
0
9,429
0
11,118
0
11,729
0
Dividends
Other Financing
-2,506
500
-606
-1,328
500
-828
-1,328
0
-1,328
-1,629
0
-1,629
-2,005
0
-2,005
-2,256
0
-2,256
-27,510
-0.3x
-9,871
-26,060
-0.3x
1,450
-31,680
-0.3x
-5,620
-39,480
-0.3x
-7,800
-48,590
-0.4x
-9,110
-58,060
-0.4x
-9,470
Financing Cash Flow

Net Debt (Cash)
P/E
Target P/E
39
December 16, 2015
Europe: Automobiles
Volkswagen Summary Financials (contd.)

Exhibit 60: VW financial summary
m
Revenue by division
VW cars
Audi
2015E
2016
2017E
2018E
2019E
2020E
m
Quarterly EBIT (including one-off)
1Q
2Q
2015E
2016
2017E
2018E
2019E
2020E
12,697
6.3%
5,994
2.8%
10,900
5.2%
12,849
5.9%
14,303
6.4%
15,011
6.6%
-110
-1,220
345
445
224
767
650
1,800
142
1,200
2,161
1,200
1,141
1,200
52
1,200
0
1,200
105,030
58,032
96,715
58,483
97,975
61,440
100,769
60,874
101,528
63,132
101,578
64,568
22,797
22,643
21,529
21,921
21,721
23,397
22,682
24,709
23,656
24,000
27,058
24,682
CV (incl. Scania, MAN)

Financial services
Other
34,600
26,567
-53,357
36,209
27,895
-53,675
38,201
29,290
-53,929
39,127
30,754
-54,590
39,932
32,292
-57,463
41,774
33,907
-61,032
Group
% growth
216,311
6.8%
209,078
-3.3%
218,094
4.3%
224,325
2.9%
227,078
1.2%
232,535
2.4%
EBIT by division*
VW cars
1,725
241
655
1,009
674
318
Audi
Porsche
5,199
3,500
4,815
3,172
6,192
3,110
6,706
3,203
6,958
3,297
7,101
3,878
2Q
3Q
Other car brands

1,035
1,801
1,081
2,119
1,277
2,499
1,464
2,684
1,351
2,841
1,390
3,205
4Q
Total
Financial services
Other
1,932
-2,500
2,029
-2,557
2,131
-3,014
2,237
-2,999
2,349
-2,460
2,466
-1,937
Group
% growth
12,694
0.0%
10,900
-14.1%
12,849
17.9%
14,303
11.3%
15,011
4.9%
16,421
9.4%
1.6%
9.0%
0.2%
8.2%
0.7%
10.1%
1.0%
11.0%
0.7%
11.0%
0.3%
11.0%
15.4%
4.6%
14.7%
4.9%
14.3%
5.5%
14.1%
5.9%
13.9%
5.6%
14.3%
5.6%

Financial services
5.2%
7.3%
5.9%
7.3%
6.5%
7.3%
6.9%
7.3%
7.1%
7.3%
7.7%
7.3%
Currency
Product Costs
Other
Group
4.7%
5.9%
4.8%
5.2%
5.6%
5.9%
5.5%
6.4%
4.3%
6.6%
3.2%
7.1%
Fixed Costs
Commercial vehicles
Finco
-2,100
26
230
-1,900
388
97
-1,800
449
101
-1,700
235
107
-1,600
207
112
-1,600
415
117
Others
-7,200
6,200
-508
26
512
512
Operating profit current year

Margin, %
5,994
2.8%
10,900
5.2%
12,849
5.9%
14,303
6.4%
15,011
6.6%
16,421
7.1%
Operating profit ex PPA
7,044
11,830
13,659
15,063
15,721
17,081
Porsche
Other car brands

VW cars
Audi
Porsche
Other car brands
3Q
4Q
Total

1Q
Group EBIT Walk

EBIT previous year
Margin, %
Volume/Price/Mix
3,328
3,492
-3,478
2,652
5,994
6.3%
6.2%
-6.8%
4.7%
2.8%
Source: Company data, Goldman Sachs Global Investment Research., * EBIT by division excludes one-offs
40
December 16, 2015
Europe: Automobiles
Porsche (PSHG_p.DE): Reflecting our negative VW view; Sell

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Porsche (PSHG_p.DE)

We reiterate our Sell on Porsche, with a new 12-month price target of 47 (was 36). Porsche shares have been
down 26% ytd, negatively impacted alongside VW and therefore significantly underperforming the sector (up
9%). While Porsche has c.2.5 bn available for investment (earmarked for assets along the automotive value
chain), it has to date seemed in little rush to deploy these funds, having made just one external investment (a
stake in traffic information provider Inrix for US$55 mn in 2014). As such, we believe the current key drivers for
Porsche SEs shares are: 1) developments in the legal actions facing the company; and 2) perhaps more
importantly, the value of its 51% stake in VW. We change our estimates to reflect our Volkswagen adjustments.
Catalyst
Key data
Current
Price ()
Market cap ( mn)
48.66
47.00
(3)
13,382.5
14,920.6
12/17E
0.0
NM
(71.0)
0.0
9.45
12.50
-5.2
5.2
0.6
NM
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
0.0
NM
(71.0)
0.0
9.88
9.88
NM
7.3
2.8
1.2
1.3
12/15E
0.0
NM
(71.0)
0.0
5.74
9.92
NM
8.5
5.2
1.9
NM
12/16E
0.0
NM
(71.0)
0.0
8.19
10.71
-5.9
5.2
0.0
NM
We retain our Sell rating on Porsche SE. We increase our Porsche SE 12-month price target to 47 (from 36).
The sole driver for the change is the increase in our 12-month price target for VW (to 129 from 100).
Valuation
We use a NAV method to value Porsche SE stock, with the VW stake valued at our VW 12-month price target,
and with 0.98bn 2016E net cash net of pension liabilities. We apply a 20% holding company discount
(unchanged), in line with the European average. We also assume legal liabilities of 3.0bn (unchanged) based on
the sum size of the two largest ongoing claims. We take no view on the outcome of these or other ongoing
actions against Porsche. Our 12-price target of 47 implies a downside of 3%, vs an average upside of 14%
across our coverage. As a Porsche SE is a holding company, P&L operating metrics are not drivers of the shares
and we therefore prefer not mislead by commenting on our estimates vs. consensus.

100
520
90
500
80
480
70
460
60
440
50
420
40
400
30
Dec-14
380
Mar-15
Porsche (L)

Absolute
Jun-15
Sep-15
Key risks
The most important single determinant of Porsche SEs share price is the market price of VW ordinary shares,
which have experienced significant volatility year-to-date, and which continue to be subject to those upside risks
as outlined in the VW section above (e.g. less emissions-scandal-related fallout than expected, improving
underlying operating profitability). Other Porsche-specific upside risks include lower legal liabilities materialising
from positive court rulings, the positive impact of currently limited investment activities, and finally the market
applying a lower holding company discount.
3 month
(20.9)
(20.7)
6 month 12 month
(38.8)
(28.7)
(31.9)
(31.1)
41
December 16, 2015
Europe: Automobiles
Porsche in charts
Exhibit 61: Porsche trades below its NAV driven
by...
Exhibit 62: ...legal liabilities and/or holding

discount
Exhibit 63: Porsche has c.5.4 bn of legal claims

bn
6,000
140
5,000
100
4,000
mn
120
0.2
-40%
0.2
1.20
-35%
3,000
1.80
80
-45%
5.4
-30%
60
2,000
40
-25%
1,000
2.0
Implied discount assuming no legal liabilities (RHS)

Research.
Exhibit 64: SOTP analysis implies a 47 valuation
Exhibit 65: Shares affected by VW scandal
mn, per share; 12-month price target timeframe
Valuation at VW
Valuation at GS
300
current price
pref. price target
250
Volkswagen Stake
NOSH
VW Ords value per share
Value
154
137
21,021
154
129
19,866
200
Net liquidity
Pension
Assumed legal liabilities
Net asset value
Adj NOSH
NAV per share
Holding company discount
1,001
-20
-3,000
19,001
306
62
-20%
1,001
-20
-3,000
17,846
306
58
-20%
100
50
47
Porsche SE PT
Total claims
UK
Stuttgart
Hanover
Braunschweig
Oct-15
Implied legal liabilities assuming no discount
NAV per share ()
Source: Datastream.

Research.
100
80
60
150
40
20
50
0
VW share price
Dec-15
Oct-15
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Dec-13
Feb-14
Porsche SE
Dec-15
Aug-15
Apr-15
Jun-15
Feb-15
Oct-14
Dec-14
Aug-14
Apr-14
Jun-14
Feb-14
Dec-15
Oct-15
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
Aug-14
Jun-14
Apr-14
Feb-14
Dec-13
Porsche share price
-20%
Dec-13
Others
20
Porsche share price (RHS)
Source: Datastream.
42
December 16, 2015
Europe: Automobiles
Continental (CONG.DE): Improving growth outlook to drive re-rating; reiterate CL-Buy

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Continental (CONG.DE)

Key data
Price ()
Market cap ( mn)
Revenue ( mn) New
EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
34,505.7
0.0
3,874.5
0.0
12.57
12.57
7.7
13.1
2.0
6.2
12.5
12/15E
39,157.4
0.0
4,474.8
0.0
14.32
14.31
8.4
15.0
1.9
5.6
12.3
12/16E
41,575.3
(1.1)
4,849.5
(0.8)
15.92
16.06
7.5
13.5
2.1
5.7
12.1
Current
214.20
260.00
21
42,841.3
50,549.9
12/17E
43,665.4
(2.3)
5,149.9
(2.5)
17.14
17.60
6.9
12.5
2.3
5.7
11.9
We reiterate our Conviction List Buy on Conti with a new 12-month price target of 260 (was 244). We make
only minor adjustments to our estimates to reflect our updated production estimates. The increase in our price
target is driven by our higher 2016E EV/IC target multiple of 2.64x (was 2.49x) as we now move our valuation
framework for Conti to average 2016-20 returns (from 2016 previously), and we use a 10% premium to our EV/IC:
ROIC/WACC multiple for the defensive nature of Contis tyre business. We view Conti as one of the best
positioned auto suppliers, with a wide range of high growth products exposed to themes of powertrain
advancement and emission reduction, active safety, infotainment, connectivity. While many suppliers are
exposed to some of these themes, Conti is one of the few global auto suppliers that have significant exposure to
all. Given the likely variations in the pace of penetration for most of these trends, we see Conti as one of the best
ways to invest in the shift of value-add in the auto industry.
Catalyst
(1) Strong organic growth: Driven by the Automotive division, we believe Conti will continue to deliver
above-sector-average organic growth of 6.2% over 2016-19, with Automotive at 7.2% and Rubber at 3.6%. The
strong growth of the Automotive division is partly driven by growing content for its powertrain business and
exposure to active safety. We see Conti as a key beneficiary of increased focus on emission standards, which we
expect to lead to a better growth outlook for its powertrain business. With c.700 mn of revenue from ADAS as
of 2015, Conti is the largest ADAS auto supplier in the world on our estimates. Our analysis of the ADAS market
suggests this division alone can add c.140 bp cumulatively to top-line growth over the next five years.

240
540
230
520
220
500
210
480
200
460
190
440
180
420
170
400
160
Dec-14
380
Mar-15
Continental (L)

Absolute
Jun-15
Sep-15
3 month
11.4
11.8
6 month 12 month
0.1
24.1
11.4
19.9
(2) Powertrain margin improvement to offset fall in tyre margin: We forecast group EBIT margins to improve
from the last peak level in 2014 by c.100 bp to 12.4% by 2019, driven by margin improvement in the powertrain
business, despite the forecast decline in tyre margins.
(3) Strong FCF generation: We forecast average annual FCF of 2.8 bn over the next five years, giving the
company the scope to either 1) deleverage, 2) deploy it via strategic acquisitions, or 3) return it to shareholders.
Valuation
We base our 12-month price target on our 2016-20E average ROIC of 17.1% and incorporate g growth of 1.5%
in our EV/IC: ROIC/FMCC framework. We assume 1.1x EV/IC equals ROIC/FMCC (vs. 1.0x before), in-line with the
current market valuation (1.1x). We use a constant FMCC across the sector of 8.0% rather than company-specific
FMCCs (e.g. previously 7.7% for Conti). Our new 12-month price target is 260 (from 244), implying 21%
upside. The stock currently trades at 13.5x 2016E P/E, a 2% premium to the supplier coverage group.
Key risks:
Key risks are pricing pressure for the tyre business and lack of margin expansion in Autos.
43
December 16, 2015
Europe: Automobiles
Continental in six charts

Exhibit 66: Conti is a well positioned supplier
Exhibit 67: Attractive portfolio of businesses
Exhibit 68: Strong organic growth for 2016-19
2014 revenues by division
mn
100%
Contitech
11.3%
CVT Tires
5.8%
BMW
Growth score
75%
Hella
Faurecia
GKN
Volkswagen
Autoliv
Continental
50%
Michelin
FCA
Valeo
CNH
Industrial
25%
60,000
Chassis &
Safety
21.6%
12.1%
Org. growth 201619E avg. = 5.7%
50,000
12.0%
11.5%
11.2%
40,000
12.5%
11.0%
Daimler
30,000
10.5%
Nokian
Volvo
20,000
PLT Tires
22.3%
Powertrain
18.7%
Peugeot
10.0%
10,000
9.5%
9.0%
Renault
0%
0%
25%
50%
75%
100%
Interior
20.2%
Structural score
Revenue
EBIT margin (RHS)

Research.
Exhibit 69: Tyre margins to peak in 2015E
Exhibit 70: Strong FCF gives Conti optionality
Exhibit 71: Returns to drive further rerating
mn, %
mn
ROIC vs. share price-implied ROIC
6,000
1,750
4,000
1,250
2,000
750
-2,000
EBIT margin (R.H.S)

Research.
Free equity cash flow
M&A
5%
Net debt (RHS)

Research
ROIC
2019E
2020E
2016E
2017E
2018E
0%
2014
2015E
-6,000
2012
2013
2020E
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
2010
2009
2020E
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
Conti Tires Revenue
-250
10%
-4,000
2008
12.0%
15%
250
20%
2010
2011
14.0%
8,000
2007
2008
2009
4,000
10,000
2,250
2005
2006
16.0%
2,750
2003
2004
18.0%
8,000
25%
12,000
2001
2002
20.0%
12,000
3,250
2000
22.0%
ROIC
16,000

Research.
Implied ROIC

Research, FactSet.
44
December 16, 2015
Europe: Automobiles
Continental Summary Financials

Exhibit 72: Continental financial summary
m
P&L
Revenues
EBITDA
EBIT
Financial Result
Pre-tax
2015E
2016E
2017E
2018E
2019E
2020E
39,157
-1,791
6,025
4,475
0
-287
3,947
41,575
-1,891
6,495
4,850
0
-262
4,342
43,665
-1,991
6,915
5,150
0
-242
4,682
46,100
-2,091
7,365
5,500
0
-222
5,052
49,156
-2,191
7,935
5,970
0
-202
5,543
51,886
-2,291
8,445
6,380
0
-202
5,953
Tax
Minority Interest
Net Income
EPS
-1,105
-80
2,762
14.32
-1,172
-87
3,083
15.92
-1,264
-92
3,326
17.14
-1,364
-98
3,590
18.45
-1,497
-107
3,939
20.20
-1,607
-114
4,231
21.66
4.00
4.50
5.00
5.40
5.80
6.30
2,762
1,791
4,714
49
4,762
3,083
1,891
5,121
-177
4,944
3,326
1,991
5,387
-206
5,181
3,590
2,091
5,756
-240
5,516
3,939
2,191
6,214
-301
5,913
4,231
2,291
6,614
-269
6,344
-2,340
-2,161
-4,501
262
-2,492
40
-2,453
2,492
-2,696
40
-2,657
2,525
-2,848
40
-2,809
2,707
-2,948
40
-2,909
3,004
-2,997
40
-2,957
3,387
0
-650
-58
-708
0
-800
-63
-863
0
-900
-67
-967
0
-1,000
-72
-1,072
0
-1,080
-78
-1,158
0
-1,160
-84
-1,244
3,270
0.2x
446
1,641
0.1x
-1,629
83
0.0x
-1,558
-1,552
-0.1x
-1,635
-3,398
-0.1x
-1,846
-5,542
-0.2x
-2,143
DPS
Cash Flow
Net income
Operating Cash Flow
Working Capital
less Capex
Other Investing
Investing Cash Flow
Free Cash Flow
Share Buyback
Dividends
Other Financing
Financing Cash Flow
m
Balance Sheet
Current Assets
Fixed Assets
Total Assets
2015E
2016E
2017E
2018E
2019E
2020E
13,443
11,066
33,081
15,554
11,536
35,761
17,623
12,106
38,504
19,853
12,726
41,461
22,441
13,346
44,775
25,249
13,916
48,259
Current Liabilities
Equity
10,731
9,191
13,159
11,104
9,191
15,466
11,396
9,191
17,917
11,736
9,191
20,533
12,163
9,191
23,421
12,545
9,191
26,523
375
399
424
451
479
510
39,157
3,286
20,315
16.2%
8.4%
1.9x
8%
1.3x
2.6x
52,685
44,976
200
225
41,575
3,557
22,021
16.2%
8.6%
1.9x
8%
1.2x
2.3x
51,711
45,608
200
228
2.64
58,055
51,951
260
43,665
3,774
22,834
16.5%
8.6%
1.9x
8%
1.1x
2.3x
53,620
49,048
200
245
46,100
4,027
23,758
17.0%
8.7%
1.9x
8%
1.1x
2.3x
55,788
52,826
200
264
49,156
4,367
24,755
17.6%
8.9%
2.0x
8%
1.1x
2.3x
58,131
56,986
200
285
51,886
4,663
25,742
18.1%
9.0%
2.0x
8%
1.0x
2.3x
60,448
61,416
200
307
128%
152%
11.2x
13.3x
15.0x
18.1x
116%
140%
10.0x
12.0x
13.5x
16.3x
107%
129%
9.1x
11.0x
12.5x
15.2x
98%
119%
8.2x
10.0x
11.6x
14.1x
Minority Interests
ROIC
Revenue
NOPLAT
ROIC
NOPLAT Margin (%)
Asset Turn
WACC
EV/IC:ROIC/WACC
EV/IC
Implied EV
Number of Shares
ROIC based value per share
EV/IC:ROIC/WACC (at g = 1.5%)
Implied EV
Implied Equity value
Price Target
Valuation
Net Debt (Cash)

EV/Sales
Target EV/Sales
EV/EBIT
Target EV/EBIT
P/E
Target P/E
45
December 16, 2015
Europe: Automobiles
Continental Summary Financials

Exhibit 73: Continental financial summary
m
Revenue by division
Automotive Group
Chassis & Safety
Powertrain
Interior
Rubber Group
Tires
Passenger & Light Truck Tires
Commercial Vehicle Tires
ContiTech
Other / consolidation
Group
2015E
2016E
2017E
2018E
2019E
2020E
23,703
8,418
7,148
8,137
15,685
10,220
8,062
2,159
5,464
-230
39,157
25,507
8,940
7,536
9,031
16,313
10,538
8,338
2,201
5,775
-244
41,575
26,839
9,307
7,903
9,629
17,083
11,077
8,795
2,283
6,005
-256
43,665
28,616
9,877
8,402
10,336
17,756
11,510
9,150
2,360
6,246
-271
46,100
30,891
10,636
9,021
11,234
18,553
12,057
9,608
2,449
6,496
-289
49,156
32,832
11,312
9,478
12,042
19,359
12,604
10,074
2,529
6,755
-305
51,886
13%
6%
5%
6%
7%
6%
Automotive Group
Chassis & Safety
Powertrain
Interior
Rubber Group
Tires
ContiTech
Other / consolidation
Group
2,106
830
430
845
2,500
2,040
1,679
362
460
-131
4,475
2,364
900
505
960
2,625
2,070
1,698
372
555
-140
4,850
2,561
950
580
1,030
2,745
2,140
1,759
381
605
-156
5,150
2,831
1,040
680
1,110
2,845
2,200
1,812
388
645
-176
5,500
3,175
1,150
805
1,220
2,995
2,300
1,904
396
695
-200
5,970
3,461
1,240
900
1,320
3,135
2,390
1,989
401
745
-216
6,380
Quarterly EBIT
1Q
2Q
3Q
4Q
Total
1,054
1,250
1,076
1,095
4,475
% growth
EBIT by division
m
EBIT margin
Automotive Group
Chassis & Safety
Powertrain
Interior
Rubber Group
Tires
ContiTech
Group
2015E
2016E
2017E
2018E
2019E
2020E
8.9%
9.9%
6.0%
10.4%
15.9%
20.0%
20.8%
16.8%
8.4%
11.4%
9.3%
10.1%
6.7%
10.6%
16.1%
19.6%
20.4%
16.9%
9.6%
11.7%
9.5%
10.2%
7.3%
10.7%
16.1%
19.3%
20.0%
16.7%
10.1%
11.8%
9.9%
10.5%
8.1%
10.7%
16.0%
19.1%
19.8%
16.4%
10.3%
11.9%
10.3%
10.8%
8.9%
10.9%
16.1%
19.1%
19.8%
16.2%
10.7%
12.1%
10.5%
11.0%
9.5%
11.0%
16.2%
19.0%
19.7%
15.9%
11.0%
12.3%
1,676
8.0%
216
112
0
8
94
2,106
8.9%
2,106
8.9%
293
4
0
14
-51
2,364
9.3%
2,364
9.3%
237
0
0
0
-40
2,561
9.5%
2,561
9.5%
320
0
0
0
-50
2,831
9.9%
2,831
9.9%
410
0
0
0
-66
3,175
10.3%
3,175
10.3%
348
0
0
0
-62
3,461
10.5%
Auto EBIT Walk

Margin, %
Volume
FX
Raw materials
Acquisitions
Cost savings & other
Underlying EBIT this year
Margin, %

1Q
2Q
3Q
4Q
Total
11.0%
12.5%
11.2%
11.0%
11.4%
46
December 16, 2015
Europe: Automobiles
Faurecia (EPED.PA): Confident on 2016 targets; see scope for re-rating: Reiterate Buy
Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th

Key data
Price ()
Market cap ( mn)
Revenue ( mn) New
EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
18,828.9
0.0
673.3
0.0
1.34
1.34
4.4
21.4
1.2
5.3
9.0
12/15E
20,796.3
0.7
890.3
1.1
2.95
2.90
3.8
11.4
1.8
6.7
11.7
12/16E
21,739.3
1.5
1,024.7
1.4
3.63
3.55
3.5
9.2
2.2
5.5
12.3
Current
33.53
41.70
24
4,164.7
5,846.2
12/17E
22,397.4
1.0
1,090.4
(0.9)
4.04
4.08
3.1
8.3
2.4
7.4
12.2
With sequential production expected to improve in China due to lower destocking and improving sales, we
remain confident on Faurecias 2016 targets of >21 bn of sales and 4.5%-5.0% operating margins (GSe: 21.7 bn
and 4.7%).The shares trade on 5.3x 2016E EV/EBIT and 9.2x P/E, a 47%/30% discount to European supplier peers.
We forecast best-in-class EBIT/EPS 2015-18E CAGR of 9%/15% and see the recent pullback as an attractive entry
point.
Catalyst
We see several structural drivers for a re-rating of the shares into 2016: (1) Improvement in the North American
business: After two years of disappointing execution, we expect Faurecia to deliver its target of 100 bp of
improvement in North American EBIT margin in 2015; (2) Positive FCF ex working capital; and (3) Industry
consolidation: Recent transactions suggest consolidation has kicked off in automotive interiors and we believe
Faurecia is well placed to benefit from further consolidation and the divestment of its non-core Automotive
Exteriors business, announced December 14, 2015.
Valuation

50
530
45
500
40
470
35
440
30
410
25
Dec-14
We reiterate our Buy on Faurecia, with a 12-month price target of 41.7 (was 36.5). We make only minor changes
to our estimates reflecting our updated production estimates. The increase in our price target is driven by our
higher 2016E EV/IC target multiple of 1.65x (was 1.45x) as now factor in lower risk related to exposure to diesel
engines and VW sales.
100th
Faurecia (EPED.PA)
We base our 12-month price target on an average 2015-19E ROIC of 14% and assume EV/IC equals ROIC/WACC
and a 15% weighting to our SOTP of 44.4/share to reflect potential divestments. We assume 0.85x EV/IC equals
ROIC/FMCC (vs. 1.0x before), in-line with the current market valuation. We use a constant FMCC across the sector
of 8.0% rather than company-specific FMCCs (e.g. previously 9.3% for Faurecia). Our new 12-month price target is
41.7 (from 36.5), implying 24% upside. The stock currently trades at 9.2x 2016E P/E, a 30% discount to the
supplier coverage group.
380
Mar-15
Jun-15
Faurecia (L)

Absolute
Sep-15
3 month
4.0
4.3
6 month 12 month
(16.3)
12.0
(6.9)
8.2
Key risks
While we find the current valuation attractive in light of our earnings forecasts, we see any potential acquisition as
a risk to the equity story in the near term. The company has recently suggested it may look to add higher value
add products to its portfolio, like electronics. Given these businesses are likely to command a higher valuation
then Faurecia, this could be taken negatively by the market.
Changes in car production rates, organic growth, raw material prices and FX rates, significant exposure to
European car production.
47
December 16, 2015
Europe: Automobiles
Faurecia in six charts

Exhibit 74: Faurecia screens less favorably on
structural attractiveness
Exhibit 75: Strong EBIT growth on margin

improvement
Exhibit 76: See significant deleveraging by

16E
mn
1.0x
250
0.5x
0.0x
-0.5x
(500)
-1.0x
Net debt
Net debt / EBITDA (RHS)
2020E
(250)
margin (RHS)
EBIT ( mn)
Structural score
1.5x
500
2019E
100%
2.0x
750
2018E
75%
2.5x
1,000
2017E
50%
3.0x
1,250
2016E
25%
3.5x
1,500
2015E
0%
2020E
-1.0%
2019E
(200)
2018E
0.0%
2008
Renault
2017E
Volvo
Peugeot
0%
1.0%
200
2016E
25%
Nokian
2014
CNH
Industrial
2.0%
400
2015E
Valeo
600
2013
Michelin
FCA
3.0%
2012
Continental
50%
Daimler
2011
GKN
Volkswagen
Autoliv
2010
Faurecia
800
4.0x
1,750
2014
4.0%
Hella
4.5x
2,000
2013
1,000
2,250
2012
5.0%
2011
1,200
2009
Growth score
75%
6.0%
2010
BMW
1,400
2008
100%
2009
Factored receivables

Research.
Exhibit 77: We expect FCF (ex-working capital)

to turn positive in 2015
Exhibit 78: We see upside based on our SOTP

value
Exhibit 79: We forecast improved returns to

be sustained
mn, %
mn, 2016E

18%
30%
-600
-50%
FCF
FCF-ex working capital
4.7%
7.2x
34%
7,366
100%
deduct net debt

deduct pension
deduct minorities
(726)
(363)
(191)
-10%
-5%
-3%
Equity value
Number of shares
6,086
137.2
83%
Equity value per share
44.4
8%
6%
4%
2%
0%
-2%
ROIC

Research
2019E
Enterprise value
10%
2018E
21%
38%
9%
2017E
1,546
2,819
665
2016E
28%
38%
27%
2014
7.0x
7.5x
6.2x
2015E
4.0%
5.0%
4.5%
2013
Interior Systems
Emissions Control
Exteriors
2012
32%
2011
2,337
2010
37%
FCF yield (RHS)

Research.
7.3x
2009
-40%
5.1%
2008
-400
12%
Automotive Seating
2007
-30%
14%
2006
-20%
2005
2020E
2019E
2018E
2017E
2016E
2014
2013
2012
2011
2015E
-200
2010
2009
-10%
2008
mn
2004
0%
Margin EV/EBIT EV/Sales
2003
200
Segment
2002
10%
16%
2001
20%
400
Valuation
2000
600

Research.
Implied ROIC

Research.
48
December 16, 2015
Europe: Automobiles
Faurecia Summary Financials

Exhibit 80: Faurecia financial summary
m
P&L
Revenues
2015E
2016E
2017E
2018E
2019E
2020E
m
Balance Sheet
2015E
2016E
2017E
2018E
2019E
2020E
20,796
21,739
22,397
23,118
24,070
24,595
-430
1,535
890
-440
1,690
1,025
-460
1,780
1,090
-470
1,875
1,165
-480
1,975
1,245
-480
2,025
1,285
Current Assets
Fixed Assets
Total Assets
4,788
2,343
9,787
5,467
2,486
10,673
5,866
2,639
11,290
6,328
2,803
11,971
6,853
2,986
12,743
7,356
3,209
13,536
Financial Result
Pre-tax
5
-150
700
10
-100
890
11
-80
976
11
-70
1,061
12
-65
1,147
13
-60
1,193
Current Liabilities
Equity
6,149
1,390
2,248
6,315
1,390
2,969
6,369
1,390
3,532
6,430
1,390
4,152
6,526
1,390
4,828
6,613
1,390
5,533
175
191
208
224
242
260
Tax
Minority Interest
Net Income
EPS
-213
-72
366
2.95
-266
-77
498
3.63
-293
-78
555
4.04
-320
-78
613
4.45
-347
-82
669
4.84
-362
-84
697
5.03
Revenue
NOPLAT
20,796
559
21,739
653
22,397
698
23,118
753
24,070
804
24,595
828
DPS
0.60
0.75
0.80
0.90
0.95
1.00

ROIC
4,005
14.0%
4,211
15.5%
4,491
15.5%
4,788
15.7%
5,135
15.7%
5,492
15.1%
NOPLAT Margin (%)
2.7%
3.0%
3.1%
3.3%
3.3%
3.4%
5.2x
8.0%
1
151.5%
5.2x
8.0%
1
164.7%
5.0x
8.0%
1
164.7%
4.8x
8.0%
1
164.7%
4.7x
8.0%
1
164.7%
4.5x
8.0%
1
164.7%
6,066
4,380
124
35.3
6,935
5,655
137
41.2
7,397
6,400
137
46.6
7,885
7,161
138
52.0
8,456
8,029
138
58.1
9,045
8,952
138
64.8

EBITDA
EBIT
Cash Flow
Net income
Minority Interests
ROIC
Asset Turn
WACC
EV/IC:ROIC/WACC
EV/IC
416
645
548
665
605
690
663
710
719
730
747
740
1,094
69
1,163
1,273
-91
1,182
1,358
-45
1,313
1,438
-111
1,327
1,518
-116
1,402
1,561
-62
1,499
less Capex
-872
-920
-956
-980
-1,028
-1,084
Implied EV
Number of Shares
Other Investing
Investing Cash Flow
Free Cash Flow
4
-868
295
4
-916
266
4
-951
361
4
-976
351
4
-1,024
378
4
-1,080
419
M&A value
M&A probability
Price target
217
-56
0
-56
-60
0
157
-61
0
-61
-61
0
-61
-64
0
-64
-67
0
-67
Operating Cash Flow

Working Capital
Share Buyback
Dividends
Other Financing
Financing Cash Flow
Net Debt (Cash)
1,149
726
426
137
-177
-530
0.5x
-239
0.2x
-423
0.1x
-300
0.0x
-289
0.0x
-314
-0.1x
-353
44.4
15%
41.7
Valuation
EV/Sales
Target EV/Sales
EV/EBIT
28%
36%
6.5x
25%
32%
5.3x
23%
30%
4.7x
21%
28%
4.1x
Target EV/EBIT
P/E
Target P/E
8.3x
11.4x
14.1x
6.8x
9.2x
11.5x
6.2x
8.3x
10.3x
5.5x
7.5x
9.4x
Source: Company data, Goldman Sachs Global Investment Research., * Net Income in P&L excludes minority interest
49
December 16, 2015
Europe: Automobiles
Faurecia Summary Financials

Exhibit 81: Faurecia financial summary
m
Revenue by division
2015E
2016E
2017E
2018E
2019E
2020E
m
Half yearly EBIT
Automotive Seating
Interior Systems
Emissions Control Technologies
Automotive Exteriors
Group
5,987
5,293
7,192
2,324
20,796
6,276
5,522
7,516
2,425
21,739
6,457
5,639
7,846
2,456
22,397
6,651
5,766
8,210
2,492
23,118
6,938
5,966
8,608
2,558
24,070
7,127
6,073
8,814
2,582
24,595
1H
2H
Total
10%
5%
3%
3%
4%
2%
287
196
331
76
890
320
221
376
108
1,025
336
248
408
99
1,090
359
259
452
95
1,165
382
280
473
110
1,245
392
285
485
123
1,285
1H
2H
Total
4.8%
3.7%
4.6%
3.3%
4.3%
5.1%
4.0%
5.0%
4.5%
4.7%
5.2%
4.4%
5.2%
4.0%
4.9%
5.4%
4.5%
5.5%
3.8%
5.0%
5.5%
4.7%
5.5%
4.3%
5.2%
5.5%
4.7%
5.5%
4.8%
5.2%

Margin, %
% growth
EBIT by division
Automotive Seating
Interior Systems
Group
2016E
2017E
2018E
2019E
2020E
673
3.6%
890
4.3%
1,025
4.7%
1,090
4.9%
1,165
5.0%
1,245
5.2%
Volume
Raw materials/FX
Cost reductions
Acquisitions
Increase in fixed costs
Change in expensed R&D & D&A
New contracts
Other
197
94
25
0
-24
-107
27
5
890
110
23
20
0
-26
-22
28
1
1,025
77
0
15
0
-16
-35
21
4
1,090
94
0
15
0
-17
-40
22
1
1,165
107
0
15
0
-25
-42
22
3
1,245
51
0
15
0
-14
-34
23
-1
1,285
Margin, %
4.3%
4.7%
4.9%
5.0%
5.2%
5.2%
424
466
890
Half yearly EBIT margin
EBIT margin
Automotive Seating
Interior Systems
Group
2015E
4.0%
4.5%
4.3%
EBIT Walk
50
December 16, 2015
Europe: Automobiles
GKN (GKN.L): Expect growth to resume in 2016; see upside post derating; reinstate at Buy
Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
GKN (GKN.L)

Key data
Current
Price (p)
12 month price target (p)
Market cap ( mn)
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS (p) New
EPS (p) Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
6,990.0
0.0
289.0
0.0
10.30
10.30
15.8
35.1
2.3
4.6
9.5
12/15E
7,207.0
1.1
547.4
(1.5)
21.35
22.15
9.3
13.3
3.1
5.7
8.7
12/16E
7,845.6
5.3
587.2
(4.6)
21.90
24.75
8.6
13.0
3.2
6.4
8.5
284.3
327
15
4,824.9
7,502.9
12/17E
8,192.0
4.6
675.4
0.2
25.65
27.74
7.5
11.1
3.4
7.1
9.0
We have removed the Not Rated designation from GKN shares. GKN is now on the Buy List, with a 12-month
price target of 327p. Post the significant underperformance of the shares YTD (down 17% vs. SXAP up 18%), we
see upside to both consensus estimates and valuation. Increased weakness in the AG end-markets and slowing
production in China, along with currency headwinds, were the major drivers of the earnings downgrades in
2015. While AG end-markets are likely to remain tough in 2016, we see GKN able to keep profits at Land Systems
at least flat in 2016 with the help of restructuring benefits. We expect production to pick up in China in 2016, and
expect Driveline to continue to outgrow auto production by >2% and maintain >8% EBIT margins. We also
expect growth to resume for the Aerospace division in 2016, with EBIT margins for the core business (ex-Fokker)
at peak levels (GSe: 12.4%). We lower our 2015-19 EPS estimates by 7% on average to factor in the Fokker
acquisition and associated capital increase. We also factor in our updated production estimates and weaker endmarket outlook for AG. Despite the cuts, we see upside to consensus estimates: we are 6%/6% ahead of Reuters
consensus 2016/17 EBIT estimates. Post the underperformance, GKN trades in line with supplier peers, versus a
significant premium over the last five years, and we expect the shares to mean revert as consensus moves up.
Catalyst
We believe that GKNs businesses are well managed and the Aerospace business offers a high quality, less
volatile stream of earnings, thus enabling GKN to command a premium valuation multiple vs. its other auto
supplier peers. Given we see limited risks for estimate downgrades, we expect the shares to re-rate, especially
as GKN resumes de-levering its balance sheet in 2016. Post the Fokker acquisition, we expect net debt/EBITDA to
peak at 1.0x in 2015 before falling to 0.5x by 2017.

400
550
Valuation
380
530
360
510
340
490
320
470
Our 12-month price target of 327p is based on our average 2016/17E ROIC of 11.9% and assumes EV/IC equals
ROIC/FMCC at 8% FMCC. We use a 10% premium to our EV/IC: ROIC/FMCC target multiple at 1.1x to reflect the
more defensive nature of GKNs Aerospace business.
300
450
280
430
260
410
240
Dec-14
390
Mar-15
GKN (L)

Absolute
Rel. to FTSE World Europe (GBP)
Jun-15
Sep-15
FTSE World Europe (GBP) (R)
3 month
2.4
4.1
6 month 12 month
(23.2)
(15.3)
(14.3)
(10.7)
Key risks:
Key risks to our price target and rating include worse-than-expected automotive, AG and civil/military aircraft
production rates, FX rates, raw material prices and a reduction in the groups pension deficit. Faster-thanexpected ramp-down of more profitable programs in Aerospace and execution issues on the Fokker integration
are further risks to GKNs returns in the near term.
51
December 16, 2015
Europe: Automobiles
GKN in six charts
300
29
280
28.5
260
28
240
27.5
50%
75%
100%
Share price
Structural score
7,000
15%
6,000
10%
5,000
4,000
5%
3,000
0%
2020E
2019E
2018E
2017E
2016E
2014
Revenues ( mn)
EPS
2015E
2013
2012
2011
2010
2,000
2009
0%
25%
29.5
2008
Renault
0%
30
320
01/01/2015
Peugeot
340
20%
2007
Volvo
8,000
2006
CNH
Industrial
30.5
27/11/2015
Valeo
25%
Nokian
360
28/10/2015
Michelin
FCA
9,000
28/09/2015
50%
31
29/08/2015
Continental
380
30/07/2015
GKN
Daimler
25%
10,000
31.5
30/06/2015
Volkswagen
Autoliv
Revenues and organic growth
400
31/05/2015
Growth score
Hella
Faurecia
Share performance, EPS changes
01/05/2015
BMW
75%
Exhibit 84: ... as organic growth has slowed in

2015
01/04/2015
100%
Exhibit 83: Shares have underperformed on

downgrades
02/03/2015
31/01/2015
Exhibit 82: GKN has Q2 CP
Organic growth (%,RHS)

Research.
Source: Datastream, Goldman Sachs Global Investment

Research.
Exhibit 85: EBITA and returns expected to

improve over 2016-2020
Exhibit 86: Valuation looks attractive now
Exhibit 87: See returns improving post 2016
GKN EV/EBIT vs. peers
4%
100
2%
0.0x
2%
0%
EBITA ( mn)
ROIC (%,RHS)

Research.
ROIC
Source: Datastream, Goldman Sachs Global Investment

Research.
2020E
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
2010
2009
2008
2007
Valeo
2006
GKN
2005
Conti
Faurecia
0%
2004
Autoliv
2016E
2.0x
2015E
4%
2014
6%
200
2013
4.0x
2012
6%
2011
8%
300
2010
6.0x
2020E
8%
2019E
10%
400
2018E
8.0x
2017E
10%
2016E
12%
500
2014
10.0x
2015E
12%
2013
14%
600
2012
12.0x
2011
14%
2010
16%
700
2009
18%
14.0x
2008
16.0x
16%
2007
18%
800
2006
900
Implied ROIC

Research.
52
December 16, 2015
Europe: Automobiles
GKN Summary Financials

Exhibit 88: GKN financial summary
GBPm
P&L
Revenues
EBITDA
EBIT
Financial Result
Pre-tax
Tax
Minority Interest
Net Income
EPS
DPS
2015E
2016E
2017E
2018E
2019E
2020E
7,207
-262
809
547
52
-129
470
-108
-5
352
21.35
8.80
7,846
-282
869
587
59
-138
508
-127
-5
376
21.90
9.20
8,192
-302
977
675
54
-135
594
-149
-5
441
25.65
9.70
8,460
-322
1,047
725
56
-131
650
-163
-5
483
28.10
10.20
8,839
-332
1,112
780
60
-126
714
-178
-5
530
30.88
10.70
9,155
-332
1,189
857
64
-122
799
-200
-5
594
34.58
11.20
Cash Flow
Net income
Operating Cash Flow
Working Capital
less Capex
Other Investing
Investing Cash Flow
Free Cash Flow
Share Buyback
Dividends
Other Financing
Financing Cash Flow
357
262
689
-26
663
-393
-499
-892
-229
200
-143
0
57
376
282
728
-33
695
-381
0
-381
315
0
-153
0
-153
441
302
793
-28
764
-418
0
-418
347
0
-160
0
-160
483
322
850
-22
828
-430
0
-430
398
0
-169
0
-169
530
332
902
-31
871
-448
0
-448
423
0
-177
0
-177
594
332
953
-26
927
-467
0
-467
460
0
-186
0
-186
Net Debt (Cash)

795
0.4x
171
634
0.3x
-162
447
0.2x
-187
218
0.1x
-229
-28
0.0x
-246
-302
-0.1x
-275
GBPm
Balance Sheet
Current Assets
Fixed Assets
Total Assets
Current Liabilities
Equity
Minority Interests
ROIC
Revenue
NOPLAT
ROIC
NOPLAT Margin (%)
Asset Turn
WACC
EV/IC:ROIC/WACC
EV/IC
Implied EV
Number of Shares
Valuation
EV/Sales
Target EV/Sales
EV/EBIT
Target EV/EBIT
P/E
Target P/E
2015E
2016E
2017E
2018E
2019E
2020E
2,459
2,620
7,162
2,033
3,208
1,921
25
2,802
2,649
7,534
2,242
3,143
2,149
28
3,098
2,699
7,880
2,383
3,063
2,434
31
3,412
2,747
8,241
2,505
2,983
2,753
34
3,777
2,808
8,668
2,653
2,903
3,112
37
4,151
2,893
9,135
2,787
2,823
3,525
40
7,207
533
4,599
11.6%
7.4%
1.6x
8.0%
1
163.2%
7,505
4,931
1,673
2.95
7,846
565
4,923
11.5%
7.2%
1.6x
8.0%
1
163.2%
8,033
5,618
1,718
3.27
8,192
612
4,993
12.3%
7.5%
1.6x
8.0%
1
163.2%
8,148
5,916
1,718
3.44
8,460
648
5,067
12.8%
7.7%
1.7x
8.0%
1
163.2%
8,269
6,264
1,718
3.65
8,839
690
5,148
13.4%
7.8%
1.7x
8.0%
1
163.2%
8,401
6,639
1,718
3.87
9,155
749
5,250
14.3%
8.2%
1.7x
8.0%
1
163.2%
8,567
7,076
1,718
4.12
111%
114%
14.7x
15.0x
13.3x
15.3x
91%
102%
12.2x
13.7x
13.0x
14.9x
85%
96%
10.3x
11.6x
11.1x
12.8x
80%
90%
9.3x
10.5x
10.1x
11.6x
53
December 16, 2015
Europe: Automobiles
GKN Summary Financials

Exhibit 89: GKN financial summary
m
Revenue by division
Driveline
Powder Metallurgy
Land Systems
Aerospace
Other Businesses
Group
% growth
2015E
2016E
2017E
2018E
2019E
2020E
3,535
913
697
2,455
45
7,645
3%
3,669
952
652
3,001
47
8,322
9%
3,788
987
686
3,151
48
8,660
4%
3,875
1,003
722
3,309
49
8,958
3%
4,050
1,044
748
3,474
52
9,368
5%
4,165
1,076
773
3,648
53
9,715
4%
EBIT by division
Driveline
Powder Metallurgy
Land Systems
Aerospace
Other Businesses
Group
290
105
28
290
-2
686
305
111
30
310
0
730
320
117
38
360
0
806
330
119
47
387
0
853
350
125
54
410
0
909
360
130
61
435
0
953
EBIT margin
Driveline
Powder Metallurgy
Land Systems
Aerospace
Other Businesses
Group
8.2%
11.6%
4.0%
11.8%
-3.8%
9.0%
8.3%
11.7%
4.6%
10.3%
0.9%
8.8%
8.4%
11.8%
5.6%
11.4%
-0.9%
9.3%
8.5%
11.9%
6.5%
11.7%
-0.6%
9.5%
8.7%
12.0%
7.2%
11.8%
-0.2%
9.7%
8.6%
12.1%
7.8%
11.9%
0.1%
9.8%
m
Half yearly EBIT
1H
2H
Total
2015E
2016E
2017E
2018E
2019E
2020E
245
302
547

1H
2H
Total
9.0%
9.0%
9.0%
Driveline EBIT Walk

Margin, %
280
8.1%
290
8.2%
305
8.3%
320
8.4%
330
8.5%
350
8.7%
Volume/Mix
Pricing
FX
Raw materials
Cost savings and other
Margin, %
44
-34
-4
5
-1
290
8.2%
50
-53
-1
5
14
305
8.3%
43
-55
0
5
22
320
8.4%
36
-57
0
5
26
330
8.5%
58
-58
0
5
15
350
8.7%
44
-61
0
5
21
360
8.6%
Source: Company data, Goldman Sachs Global Investment Research., * Half year EBIT figures excludes JVs and corporate costs
54
December 16, 2015
Europe: Automobiles
Hella (HLE.DE): Strong organic growth amid pause in margin expansion; up to Buy
Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Hella KGaA Hueck (HLE.DE)


Key data
Price ()
Market cap ( mn)
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
5/15
5,834.7
0.0
429.5
0.0
2.70
2.70
6.0
14.7
1.9
3.5
11.7
5/16E
6,414.9
2.5
414.5
2.6
2.48
2.45
5.3
14.6
2.0
3.9
11.8
5/17E
6,829.7
2.9
534.2
1.2
3.28
3.34
4.3
11.1
2.7
6.6
13.4
Current
36.36
42.90
18
4,040.0
4,436.7
5/18E
7,170.6
1.7
598.2
2.7
3.72
3.72
3.7
9.8
3.1
8.5
14.2

48
46
44
42
40
38
36
34
32
30
Dec-14
560
540
520
500
480
460
440
420
400
380
Mar-15
Jun-15
Hella KGaA Hueck (L)

Absolute
We upgrade Hella to Buy with a new 12-month price target to 42.9 from 37.3. We make minor changes to our
estimates to factor in our updated production forecasts. The increase in our price target is driven by our higher
2016E EV/IC target multiple of 1.64 (was 1.39) as now factor in lower risk related to exposure to VW sales. We
believe Hella is well positioned in its key segments of lighting and electronics. We forecast top-quartile organic
growth (6.4%) over 2015-19E, driven by secular growth trends in LED lighting, active safety, CO2 reduction and
engine-related electronics. Hella has been the fastest growing auto supplier in our coverage over the last two
quarters (c.10% organic growth), largely driven by the lighting division. In addition, we view the high level of
capex and R&D spend by Hella to be supportive of stronger growth rates in the coming years. However, as a
result of the companys rather conservative guidance on growth and lack of track record, we view the growth
priced in by the market as relatively cautious. Sustained delivery of strong growth is likely to drive re-rating of
the shares, in our view.
Catalyst
While Hellas margin improvement potential is a major driver of the equity story post its IPO in 2014, its in fact
growth that has continued to surprise positively while the margin improvement has been more muted. In
addition to the China supplier issue, Hellas 1Q operating margins were impacted by ramp-up costs and
headwinds from hedging. While we still see limited EBIT margin improvement in FY16/17 (130 bp), we do
forecast a sequential improvement in the margins as the above mentioned headwinds start to ease. We continue
to be constructive on the medium-term margin expansion at Hella. We expect R&D and SG&A ratios to drop
from current peak levels and forecast Hellas EBIT margins to expand to 8.5% by 2019, from 6.4% in 2014.
Valuation
On our estimates, Hella trades on 7.9x EV/EBIT and 11.1x P/E on FY2016E, a 19%/16% discount respectively to its
European peers. Our 12-month price target of 42.9 is based on an average 2015E-19E ROIC of 15.3% and a
WACC of 8.0%. We continue to incorporate a growth factor g of 1%. Our 2016 revenue and EBIT estimates are
3% above Reuters consensus.
Sep-15
3 month
(3.8)
(3.5)
6 month 12 month
(20.7)
9.7
(11.8)
6.0
Key risks:
Key risks include a slowdown in both auto production and penetration of the technologies to which Hella is
exposed, increased pricing pressure, value-destroying deals, unfavourable FX and raw material price moves.
55
December 16, 2015
Europe: Automobiles
Hella in six charts

Exhibit 90: Hella is well positioned among
auto parts
Exhibit 91: ... with a strong positioning in

lighting and electronics
Exhibit 92: We see an above average organic

growth outlook
Market share in segments, 2014
Organic growth (%), 2016-19E

10%
100%
Electronics
Lighting
8%
BMW
6%
Hella
Daimler
0%
25%
50%
75%
100%
Magna Int.
Tenneco
Tower Int.
Dana Holding
0%
Lear Corp
Renault
0%
Johnson Controls
Peugeot
Hella
12%
GKN
Leaders:
Bosch,
Continent
al, Denso
Faurecia
Volvo
Koito,
Valeo,
Magneti
Marelli
>55%
Meritor
25%
2%
Other
82%
Nokian
Hella
CNH
Industrial
Denso
Michelin
FCA
Valeo
4%
Others
31%
Hella
18%
Autoliv
Continental
Stanley Electric
Autoliv
50%
Valeo
GKN
Volkswagen
Continental Auto
Faurecia
BorgWarner
Growth score
75%
Structural score
Source: Company data.

Hellas EBIT margin progression

9%
Exhibit 95: Attractive valuation among global

suppliers
FCF pre-dividend and FCF yield
EV/EBITDA (2016E) vs 2016-19E org. growth
500
0.4%
8.4%
300
5.1%
100
3.4%
2020E
2014
2013
EBIT margin (2019E)
Other
Share of associates
SG&A
R&D
Gross margin
EBIT margin (2014)

Research.
-100
2019E
2.4%
4%
4%
2018E
6.4%
6%
200
2017E
-0.8%
8%
7.1%
2016E
8.5%
1.0%
6%
10%
400
1.1%
7%
10.5%
0.3%
2015E
8%
5%
Exhibit 94: Improving FCF driven by higher

profits
EV/EBITDA (CY16)
Exhibit 93: ..and strong margin expansion
10.0X
9.0X
Autoliv
Johnson Controls
8.0X
GKN
Meritor
7.0X
2%
5.0X
0%
4.0X
-2%
3.0X
BorgWarner
Denso
6.0X
Magna Int.
Dana Holding
Continental
Stanley Electric
Valeo
Lear Corp
Tenneco
Hella
Tower International
Faurecia
-200
FCF (pre-dividend)
FCF yield (%, RHS)

Research, FactSet.
0%
2%
4%
6%
8%
10%
Organic growth (16-19 avg.
56
December 16, 2015
Europe: Automobiles
Hella Summary Financials

Exhibit 96: Hella financial summary
m
P&L
Revenues
2015E
2016E
2017E
2018E
2019E
2020E
m
Balance Sheet
2015E
2016E
2017E
2018E
2019E
2020E
5,835
6,415
6,830
7,171
7,510
7,879
-336
766
429
-430
844
415
-478
1,012
534
-516
1,114
598
-548
1,187
639
-583
1,261
678
Current Assets
Fixed Assets
Total Assets
2,636
1,612
4,917
2,794
1,564
5,052
3,053
1,482
5,252
3,352
1,375
5,461
3,691
1,253
5,689
4,075
1,109
5,942
Financial Result
Pre-tax
55
-36
394
52
-33
381
61
-33
501
72
-31
568
83
-27
612
97
-23
656
Current Liabilities
Equity
1,349
1,658
1,910
1,391
1,658
2,004
1,437
1,658
2,157
1,470
1,658
2,333
1,503
1,658
2,528
1,538
1,658
2,746
30
40
51
63
76
90
Tax
Minority Interest
Net Income
EPS
-98
-8
287
2.70
-95
-10
276
2.48
-125
-11
365
3.28
-142
-12
414
3.72
-153
-13
446
4.01
-164
-14
478
4.30
DPS
0.77
0.75
0.99
1.12
1.20
1.29
6,415
333
3,015
11.1%
6,830
370
3,074
12.0%
7,171
416
3,096
13.4%
7,510
445
3,089
14.4%
7,879
464
3,048
15.2%
8,268
471
2,968
15.9%
5.2%
2.1x
8.0%
1
1.55
4,670
4,274
111
38.5
5.4%
2.2x
8.0%
1
1.55
4,763
4,476
111
40.3
1.64
5,048
4,761
42.9
5.8%
2.3x
8.0%
1
1.55
4,796
4,670
111
42.0
5.9%
2.4x
8.0%
1
1.55
4,786
4,858
111
43.7
5.9%
2.6x
8.0%
1
1.55
4,722
5,065
111
45.6
5.7%
2.8x
8.0%
1
1.55
4,598
5,247
111
47.2
57%
68%
6.8x
8.2x
9.8x
11.5x
52%
62%
6.1x
7.3x
9.1x
10.7x

EBITDA
EBIT
Cash Flow
Net income
Operating Cash Flow
Working Capital
287
336
660
-98
563
276
430
742
-103
640
365
478
914
-99
815
414
516
1,052
-93
959
446
548
1,176
-96
1,079
478
583
1,263
-62
1,201
less Capex
Other Investing
Investing Cash Flow
Free Cash Flow
-413
-46
-459
104
-481
-63
-544
96
-546
-65
-611
204
-609
-67
-677
283
-676
-69
-745
334
-709
-73
-782
419
Share Buyback
Dividends
Other Financing
Financing Cash Flow
0
-59
-88
-148
0
-82
0
-82
0
-83
0
-83
0
-109
0
-109
0
-124
0
-124
0
-134
0
-134
131
118
-4
-177
-387
-673
0.1x
-294
0.1x
-14
0.0x
-121
-0.1x
-173
-0.2x
-210
-0.2x
-286
Minority Interests
ROIC*
Revenue
NOPLAT
ROIC
NOPLAT Margin (%)
Asset Turn
WACC
EV/IC:ROIC/WACC
EV/IC
Implied EV
Number of Shares
EV/IC:ROIC/WACC (at g = 1%)
Implied EV
g
Price target
1.0%
42.9
Valuation
Net Debt (Cash)
EV/Sales
Target EV/Sales
EV/EBIT
Target EV/EBIT
P/E
Target P/E
68%
80%
10.5x
12.4x
14.6x
17.3x
62%
74%
7.9x
9.4x
11.1x
13.0x
Source: Company data, Goldman Sachs Global Investment Research, * ROIC framework adjusts for May year end
57
December 16, 2015
Europe: Automobiles
Hella Summary Financials

Exhibit 97: Hella financial summary
m
Revenue by division
Automotive
o/w Lighting
o/w Electronics
Aftermarket
Special applications
Eliminations/Other
Group
% growth
2015E
2016E
2017E
2018E
2019E
2020E
4,591
2,458
2,210
1,187
310
-253
5,835
9%
4,992
2,671
2,401
1,270
313
-160
6,415
10%
5,357
2,863
2,574
1,334
319
-180
6,830
6%
5,648
3,016
2,712
1,387
335
-200
7,171
5%
5,949
3,175
2,855
1,429
352
-220
7,510
5%
6,278
3,348
3,010
1,471
370
-240
7,879
5%
EBIT by division
Automotive
Aftermarket
Eliminations/Other
Group
% growth
354
73
19
-16
430
26%
322
89
23
-20
415
-3%
419
100
26
-10
534
29%
469
111
29
-10
598
12%
503
114
32
-10
639
7%
536
118
35
-10
678
6%
EBIT margin
Automotive
Aftermarket
Eliminations/Other
Group
7.7%
6.1%
6.1%
6.5%
7.4%
6.5%
7.0%
7.5%
12.5%
6.5%
7.8%
7.5%
8.0%
5.6%
7.8%
8.3%
8.0%
8.5%
5.0%
8.3%
8.5%
8.0%
9.0%
4.5%
8.5%
8.5%
8.0%
9.5%
4.2%
8.6%
m
Quarterly EBIT
1Q
2Q
3Q
4Q
Total
2015E
2016E
2017E
2018E
2019E
2020E
95
127
88
120
430

1Q
2Q
3Q
4Q
Total
7.2%
8.4%
6.3%
7.4%
7.4%
Auto EBIT Walk

Margin, %
341
6.4%
430
7.4%
415
6.5%
534
7.8%
598
8.3%
639
8.5%
Gross margin
Share of associates
Operating expenses( R&D, SG&A, Other)
Margin, %
77
18
-6
430
7.4%
100
-3
-111
415
6.5%
189
9
-79
534
7.8%
95
10
-42
598
8.3%
78
12
-49
639
8.5%
87
13
-61
678
8.6%
58
December 16, 2015
Europe: Automobiles
Valeo (VLOF.PA): Best-in-class growth set to continue; reiterate Buy

Investment Profile
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Valeo (VLOF.PA)

Key data
Price ()
Market cap ( mn)
Revenue ( mn) New

EBIT ( mn) New
EBIT revision (%)
EPS () New
EPS () Old
EV/EBITDA (X)
P/E (X)
Dividend yield (%)
FCF yield (%)
CROCI (%)
12/14
12,725.0
0.0
862.0
0.0
7.23
7.23
5.6
13.0
2.3
4.7
11.1
12/15E
14,403.7
0.3
1,024.7
0.9
8.89
8.80
6.4
15.1
2.0
4.4
12.0
12/16E
15,482.2
0.2
1,149.8
(2.6)
10.19
10.46
5.7
13.2
2.4
4.9
12.1
Current
134.10
158.00
18
10,546.0
11,862.0
12/17E
16,417.0
(1.2)
1,249.7
(6.4)
10.88
11.77
5.2
12.3
2.7
5.4
11.9
We reiterate our Buy rating on Valeo with a revised 12-month price target of 158 (from 150). We make only
modest changes to our estimates to factor in our updated production estimates.
We continue to forecast Valeo to have best-in-class top-line growth among our coverage, driven by the strong
growth of its innovation products: electric superchargers, stop-start systems, LEDs, parking assistance,
ultrasonic sensors, etc. In addition, Valeo has a top-2 market share position across most of its products, helping
it to outgrow global auto production. While we acknowledge that high-single-digit organic growth over 2015-20
is already factored into current consensus estimates, continued delivery of this is likely to drive further sector
relative re-rating, in our view.
Catalyst
We continue to forecast limited operating leverage over the next five years, owing to the reversal of depreciation
and net capitalised R&D benefits. As a result, we forecast c.7% organic revenue growth on average over 2015-19,
but see operating margins expanding only to 8.5% in 2019 from 7.2% in 2014. While the reversals of these
accounting tailwinds hamper margin expansion, they should also lead to improving cash conversion. We
forecast Valeos underlying FCF (ex-working capital)/EBITDA to increase to 23% in 2016 from 17% in 2014. Along
with growth, we believe the pick-up in free cash flow (excluding working capital) will be a driver of a further rerating. In the near term, we see support from improving production in China and continued strong
outperformance of the European auto production to drive an acceleration in the organic growth.

160
520
150
500
140
480
130
460
120
440
110
420
100
400
90
Dec-14
380
Mar-15
Valeo (L)

Absolute
Jun-15
Sep-15
3 month
15.6
15.9
Valuation
Our new 12-month price target of 158 is based on average 2016-20E ROIC of 17% and assumes EV/IC equals
(ROIC-g)/ (WACC-g) (WACC at 8%, g at 2%). The increase in our price target is driven by our higher 2016E EV/IC
target multiple of 2.51x (was 1.96x) as we now move our valuation framework to average 2016-2020 returns,
from 2016 previously.
Key risks
Lower car production rates and organic growth, weak execution and adverse movements in raw material prices
and FX rates are key downside risks.
6 month 12 month
(9.8)
36.6
0.3
32.0
59
December 16, 2015
Europe: Automobiles
Valeo in six charts

Exhibit 99: Strong organic growth to
continue
0%
25%
50%
75%
100%
600
6%
EBIT ( mn)
2020E
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
2010
2009
0%
2008
2%
2007
4%
200
2006
400
2020E
2019E
2018E
2017E
2016E
2014
2015E
8%
y/y organic growth (RHS)
Valeo revenues ( mn)
Structural score
12%
1,000
-10%
-30%
Renault
14%
10%
6,000
0%
16%
800
8,000
2007
Peugeot
18%
1,400
0%
-20%
2013
Volvo
2012
25%
10,000
2011
CNH
Industrial
14,000
2010
Valeo
Nokian
20%
1,600
1,200
10%
12,000
Michelin
FCA
1,800
2005
Daimler
Continental
50%
20%
16,000
Volkswagen
Autoliv
30%
2009
GKN
20,000
2008
Growth score
Hella
Faurecia
40%
18,000
BMW
75%
22,000
2004
100%
Exhibit 100: ..driving profits and returns
2003
2002
Exhibit 98: Valeo has third quartile CP
ROIC (RHS)

Research.

Research.
Exhibit 101: ..despite R&D capitalization

benefits reversing
Exhibit 102: FCF conversion to improve
Exhibit 103: We forecast returns to improve
mn
As a % of sales
160
2010-13
800
Operating Profit
140
700
Decrease (increase) in net debt
2018E
2019E
2,841
2014 2015E
862
1,025
2016E 2017E
1,150
1,250
1,370
1,530
339
42
209
235
254
290
335
25%
20%
120
500
(57)
53
add back dividends
312
132
171
212
252
286
320
add back net M&A
150
203
744
430
380
447
506
576
655
185
40
37
11
Free equity cash flow
60
400
of which working capital
300
FECF pre working capital
40
20
as a % of Operating Margin
390
343
438
499
567
644
45%
33%
38%
40%
41%
42%
Depreciation (RHS)
2020E
2019E
2018E
2017E
2016E
2014
2015E
2013
2012
2011
2010
2009
2008
2007
200
2006
559
20%

Research
15%
10%
5%
0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
2020E
80
deduct net capital increase
ROIC
600
100
ROIC
Implied ROIC
Net capitalised R&D

Research, FactSet.
Research.
60
December 16, 2015
Europe: Automobiles
Valeo Summary Financials

Exhibit 104: Valeo financial summary
m
P&L
Revenues
EBITDA
EBIT
Financial Result
Pre-tax
Tax
Minority Interest
Net Income
EPS
DPS
2015E
2016E
2017E
2018E
2019E
2020E
14,404
-759
1,834
1,025
45
-81
903
-167
-38
697
8.89
2.70
15,482
-819
2,023
1,150
54
-71
1,047
-199
-44
804
10.19
3.20
16,417
-879
2,180
1,250
51
-61
1,154
-243
-48
864
10.88
3.60
17,471
-949
2,378
1,370
59
-51
1,292
-296
-52
944
11.82
4.00
18,759
-989
2,587
1,530
68
-41
1,471
-351
-59
1,062
13.21
4.50
19,898
-1,029
2,777
1,670
78
-31
1,631
-388
-65
1,178
14.56
4.80
Cash Flow
Net income
Operating Cash Flow
Working Capital
less Capex
Other Investing
Investing Cash Flow
Free Cash Flow
Share Buyback
Dividends
Other Financing
Financing Cash Flow
697
759
1,520
37
1,557
-1,082
0
-1,082
476
0
-186
-81
-267
804
819
1,685
9
1,694
-1,159
0
-1,159
535
0
-229
-71
-300
864
879
1,814
8
1,822
-1,236
0
-1,236
586
0
-271
-61
-332
944
949
1,952
9
1,961
-1,313
0
-1,313
647
0
-306
-51
-357
1,062
989
2,098
11
2,109
-1,391
0
-1,391
718
0
-342
-41
-383
1,178
1,029
2,245
9
2,254
-1,437
0
-1,437
817
0
-387
-31
-418
132
0.0x
-209
-103
0.0x
-235
-357
-0.1x
-254
-647
-0.1x
-290
-982
-0.2x
-335
-1,381
-0.2x
-399
Net Debt (Cash)

m
Balance Sheet
Current Assets
Fixed Assets
Total Assets
Current Liabilities
Equity
Minority Interests
ROIC
Revenue
NOPLAT
ROIC
NOPLAT Margin (%)
Asset Turn
WACC
EV/IC:ROIC/WACC
EV/IC
Implied EV
Number of Shares
EV/IC:ROIC/WACC (at g =2%)
Implied EV
Valuation
EV/Sales
Target EV/Sales
EV/EBIT
Target EV/EBIT
P/E
Target P/E
2015E
2016E
2017E
2018E
2019E
2020E
5,145
2,676
10,947
4,768
2,680
3,499
233
5,641
2,865
11,797
4,999
2,680
4,118
260
6,112
3,064
12,637
5,198
2,680
4,758
289
6,648
3,273
13,552
5,423
2,680
5,449
321
7,283
3,502
14,606
5,699
2,680
6,227
357
7,955
3,731
15,705
5,942
2,680
7,083
397
14,404
732
5,117
14.3%
5.1%
2.8x
8.0%
1
231.6%
11,852
10,503
78
134
15,482
848
5,438
15.6%
5.5%
2.8x
8.0%
1
213.1%
11,587
10,445
79
132
2.51
13,637
12,495
158
16,417
932
5,791
16.1%
5.7%
2.8x
8.0%
1
213.1%
12,340
11,423
79
144
17,471
1,048
6,157
17.0%
6.0%
2.8x
8.0%
1
213.1%
13,121
12,462
80
156
18,759
1,173
6,547
17.9%
6.3%
2.9x
8.0%
1
213.1%
13,950
13,590
80
169
19,898
1,296
6,960
18.6%
6.5%
2.9x
8.0%
1
213.1%
14,830
14,830
81
183
81%
96%
11.3x
13.5x
15.1x
17.8x
74%
88%
9.9x
11.9x
13.2x
15.5x
68%
82%
9.0x
10.7x
12.3x
14.6x
63%
75%
8.0x
9.6x
11.3x
13.4x
61
December 16, 2015
Europe: Automobiles
Valeo Summary Financials

Exhibit 105: Valeo financial summary
m
Revenue by division
Original Equipment
Aftermarket
Other
Group
% growth
2015E
12,444
1,600
2016E
13,399
1,696
2017E
14,208
1,797
2018E
15,127
1,905
2019E
16,268
2,020
2020E
17,258
2,141
Half yearly EBIT

1H
2H
517
468
Total
985
360
388
412
438
471
500
14,404
13%
15,482
7%
16,417
6%
17,471
6%
18,759
7%
19,898
6%
EBITDA
Comfort & Driving Assistance
Powertrain Systems
Thermal Systems
Visibility System
Other
Valeo EBITDA
2,023
2,180
2,378
2,587
2,777
Valeo EBITDA
13.1%
13.3%
13.6%
13.8%
14.0%
2020E
Auto EBIT Walk

Margin, %
862
6.8%
1,025
7.1%
1,150
7.4%
1,250
7.6%
1,370
7.8%
1,530
8.2%
226
195
175
196
237
213
89
-191
76
-216
54
-232
86
-246
92
-262
98
-281
54
25
1
5
0
0
0
0
0
0
0
0
-83
191
-40
216
-40
232
-40
246
-30
262
-30
281
1
-101
0
-68
0
-57
0
-71
0
-73
0
-80
-50
1
-37
-7
-28
-4
-50
-1
-61
-5
-54
-8
985
7.1%
1,110
7.4%
1,210
7.6%
1,330
7.8%
1,490
8.2%
1,630
8.4%
Pricing
FX
Other
12.7%
2019E
6.8%
R&D
SG&A
Visibility System
Other
2018E
Total
Labour productivity
Acquisitions
Powertrain Systems
Thermal Systems
2017E
7.1%
6.6%
Raw material cost

Depreciation
EBITDA margin
Comfort & Driving Assistance
2016E

1H
2H
Volume
Mix
1,834
2015E

Margin, %
Source: Company data, Goldman Sachs Global Investment Research., *Half yearly EBIT estimates strip out restructuring costs
62
December 16, 2015
Europe: Automobiles
Price target and estimate changes
63
December 16, 2015
Europe: Automobiles
GS ROIC valuation framework

Our 12-month price targets continue to be based on EV/IC = ROIC/FMCC. We now use a consistent fair market cost of
capital (FMCC) of 8.0% across the board, except at VW where we apply an additional 200 bp (i.e. we use an FMCC of 10%) to
reflect ongoing uncertainty around legal and product-fix-related risk.
We vary among companies the target ratio of EV/IC to ROIC/FMCC, with assumptions listed in the exhibit below. For those stocks
that we believe may be viewed as M&A targets (FCA, PSA, Faurecia, Nokian), we continue to incorporate 15% potential M&A
weighting to SOTP valuations.
Exhibit 106: Our 12-month price targets imply average upside potential of 14%
Values in millions except per share values; all price targets have 12-month horizon, priced as on close of December 11, 2015
Share
price
Target
ROIC**
FMCC
EV/
IC
EV/IC
ROIC/WACC
EV
Net debt
(cash)
13.2%
15.2%
7.0%
Pension
Minorities
/ other adj
Equity
value
NoSh
8.0%
8.0%
8.0%
1.24
1.33
0.70
0.75
0.70
0.80
58,690
84,553
32,134
-5,990
-20,648
4,751
3,270
9,800
8,910
259
2,419
-6,391
61,151
92,981
24,864
645
1,070
1,511
11.3%
6.5%
8.0%
8.0%
0.78
0.81
0.55
1.00
12,867
27,682
-4,578
-3,398
856
1,750
1,420
722
15,170
28,608
864
296
6.0%
10.0%
0.48
0.80
80,506
-26,060
29,806
11,886
64,875
BMW
Daimler
FCA
FCA (US)
PSA
Renault
Porsche
VW
US$
94.1
74.6
12.5
13.6
15.8
87.8
48.7
129
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
US$
GBp
123
214
33.5
284
36.4
86.8
32.9
134
14.3%
17.1%
15.5%
11.9%
13.8%
10.0%
21.5%
17.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
2.37
2.64
1.65
1.63
1.64
1.31
3.76
2.51
1.20
1.10
0.85
1.10
0.90
1.05
1.40
1.00
12,077
58,055
6,935
8,033
5,048
22,688
4,600
13,637
634
1,641
726
634
-4
1,101
-243
-103
233
4,064
363
1,711
240
4,612
0
985
15
399
191
70
51
19
0
260
CNH Ind (US) US$

CNH Ind
Volvo
Skr
7.1
6.5
76.9
8.9%
8.0%
1.11
1.00
15,589
2,104
2,614
10.0%
8.0%
1.25
1.00
188,533
2,491
14,800
ROICbased
Dividend
fair value
Yield
3.7%
0.0%
0.0%
Rating
501
95
87
16.5
17.9
17.6
97
47
129
1.8%
SELL
BUY
BUY*
BUY*
BUY
Neutral
SELL
SELL
11,196
51,951
5,655
5,618
4,761
16,956
4,843
12,495
86
200
137
1,718
111
181
135
79
130
260
41.2
327
42.9
94
35.8
158
2.3%
2.0%
2.3%
3.1%
2.7%
4.0%
4.4%
2.3%
Neutral
BUY
BUY
BUY
BUY
Neutral
Neutral
BUY
16
10,856
1,354
3.2%
-39
171,281
2,036
8.0
7.3
84
Neutral
Neutral
Neutral
0.0%
3.2%
3.9%
M&A
value
27.0
29.4
26.1
M&A
probability
15%
15%
15%
44.4
15%
38.5
15%
Price
target
IC
growth (%)
Upside
95
87
18.0
19.6
18.8
97
47
129
1%
16%
44%
5.9%
6.2%
3.9%
0.0%
0.0%
0.0%
19%
10%
-3%
1%
4.5%
4.6%
1.9%
0.0%
0.0%
0.0%
0.0%
130
260
41.7
327
42.9
94
36.2
158
6%
21%
24%
15%
18%
8%
10%
18%
5.3%
3.9%
6.6%
1.5%
0.2%
2.9%
10.2%
6.4%
1.5%
1.5%
0.0%
0.0%
1.0%
0.0%
0.0%
2.0%
14%
1.6%
0.0%
9%
14%
0.5%
4.1%
0.0%
8.0
7.3
84
Average upside
**denotes 2016E ROIC for all companies except VW, GKN (both use 2016-17E average ROIC), Autoliv, Continental, Hella, Nokian, Valeo, CNHI (avg. 2016-20E ROIC), Source: Company data, Goldman Sachs Global
Investment Research.
64
December 16, 2015
Europe: Automobiles
2016 EV/IC / ROIC/WACC

Source: Goldman Sachs Global Investment Research
Renault
Volkswagen
Autoliv
Nokian
CNH Industrial
Michelin
FCA
Conti
Valeo
CNH Industrial
Volvo
Hella
Faurecia
PSA
PSA
Daimler
BMW
FCA
Volkswagen
Faurecia
0%
Renault
0.0
Volvo
4%
Hella
0.4
Michelin
8%
Valeo
0.8
Conti
12%
Autoliv
1.2
CNH Industrial
16%
Nokian
1.6
FCA
Exhibit 110: Target FMCC for our coverage (on 2016)*
BMW
Exhibit 109: Target EV/IC:ROIC/WACC multiples for our coverage
Daimler
Source: Goldman Sachs Global Investment Research
Volkswagen
Source: Datastream, Goldman Sachs Global Investment Research
Michelin
Volvo
PSA
GKN
Hella
BMW
Autoliv
Daimler
Faurecia
Nokian
Autoliv
Nokian
2016 ROIC
Renault
Implied FMCC (2016)
CNH Industrial
Michelin
Valeo
0%
Conti
0%
GKN
5%
Volvo
4%
Hella
10%
Renault
8%
BMW
15%
Volkswagen
12%
FCA
20%
Faurecia
16%
Daimler
25%
PSA
20%
Valeo
Exhibit 108: ROIC by company (2016E)
Conti
Exhibit 107: Current share price-implied FMCC
Target FMCC (on 2016)

*Target FMCC = EV/IC:ROIC/FMCC * FMCC; Source: Datastream, Goldman Sachs Global Investment
Research
65
December 16, 2015
Europe: Automobiles
Estimate changes and key risks to our price targets

Exhibit 111: Changes to earnings estimates and 12-month price targets
Share prices as of December 11, 2015
Estimate changes
Share Price
Price Target
Old
New
Rating
U/D
PT period
Old
New
EPS
ccy
GS EPS (old)
GS EPS (new)
GS EPS (change)
2015E
2016E
2017E
2018E
2015E
2016E
2017E
2018E
2015E
2016E
2017E
2018E
OEMs
BMW
94.11
77
95
1%
Sell
Sell
12 months
8.68
9.09
9.54
9.21
9.51
10.05
10.79
11.21
10%
11%
13%
22%
Daimler
74.63
86
87
17%
Buy
Buy
12 months
8.48
9.21
9.65
9.21
8.51
8.90
9.38
9.82
0%
-3%
-3%
7%
1.13
1.70
2.54
2.43
1.22
1.37
2.37
2.49
8%
-20%
-7%
2%
2.16
2.05
2.27
2.35
2.12
2.13
2.21
2.31
-2%
4%
-3%
-2%
FCA
12.48
15.9
18.0
44%
Buy*
Buy*
12 months
FCA (US)
13.60
17.7
19.6
44%
Buy*
Buy*
12 months
Peugeot
15.80
17.8
18.8
19%
Buy
Buy
12 months
Porsche
48.66
36
47
-3%
Sell
Sell
12 months
9.92
10.71
12.50
12.42
5.74
8.19
9.45
10.45
-42%
-24%
-24%
-16%
Renault
87.84
82
97
10%
Neutral
Neutral
12 months
11.20
11.42
12.55
12.69
11.45
11.66
13.02
13.39
2%
2%
4%
6%
Volkswagen
128.55
100
129
0%
Sell
Sell
12 months
8.78
20.31
23.55
24.81
12.12
18.47
20.84
22.74
38%
-9%
-11%
-8%
Autoliv
122.80
119
130
6%
Neutral
Neutral
12 months
5.27
7.20
8.44
9.09
5.21
7.26
8.24
8.99
-1%
1%
-2%
-1%
Continental
214.20
244
260
21%
Buy*
Buy*
12 months
14.31
16.06
17.60
19.03
14.32
15.92
17.14
18.45
0%
-1%
-3%
-3%
Faurecia
33.53
36.5
41.7
24%
Buy
Buy
12 months
2.90
3.55
4.08
4.47
2.95
3.63
4.04
4.45
2%
2%
-1%
0%
GKN
284.30
327.0
15%
Not Rated
Buy
12 months
22.15
24.75
27.74
29.82
21.35
21.90
25.65
28.10
-4%
-11%
-8%
-6%
Hella
36.36
42.9
18%
Neutral
Buy
12 months
2.70
2.45
3.34
3.72
2.70
2.48
3.28
3.72
0%
2%
-2%
0%
Michelin
86.84
98
94
8%
Neutral
Neutral
12 months
7.51
8.46
9.11
9.99
6.32
8.20
8.76
9.25
-16%
-3%
-4%
-7%
Nokian
32.86
33.6
36.2
10%
Neutral
Neutral
12 months
2.27
1.84
2.13
2.29
1.66
1.86
2.14
2.26
-27%
1%
1%
-1%
Valeo
134.10
150
158
18%
Buy
Buy
12 months
8.80
10.46
11.77
12.78
8.89
10.19
10.88
11.82
1%
-3%
-8%
-8%
6.50
6.5
7.3
12%
Neutral
Neutral
12 months
0.16
0.54
0.68
0.82
0.16
0.44
0.57
0.72
0%
-18%
-16%
-13%
7.06
7.2
8.0
13%
Neutral
Neutral
12 months
Skr
76.90
93
84
9%
Neutral
Neutral
12 months
Skr
6.93
7.15
8.21
9.16
6.95
6.45
7.49
8.43
0%
-10%
-9%
-8%
Suppliers
37.3
Trucks
CNH Industrial
CNH Industrial (US)
Volvo
* denotes Conviction List. Source: Goldman Sachs Global Investment Research, FactSet.
66
December 16, 2015
Europe: Automobiles
Exhibit 112: 12-month price target methodology and risks to our views and price targets
Company
Methodology
Risks to our estimates and target price
OEMs
BMW
ROIC
Better organic volume grow th, stable/grow ing consolidated China profits, and better structural cost containment efforts together w ith any significant further euro w eakening are the
key upside risks to our view and price target.
Daimler
ROIC
Cyclical pressure in trucks (especially in the key NAFTA market); the product cycle w eighing more than expected on volumes/pricing; China end market w eakness; diesel fallout;
higher cost headw inds (CO2 compliance costs/expansion costs); and adverse currency (i.e. a stronger euro) are the key dow nside risks.
FCA
ROIC + SOTP *
(1) End-market deterioration; (2) further recalls in the US; (3) inability to price for competitive or regulatory add-on product content; (4) any strengthening of /$; (5) deterioration in the
risk appetite of equity markets; (6) key man risk regarding CEO Sergio Marchionne.
Peugeot
ROIC + SOTP *
Diesel fallout, sharp decline in European and/or global volumes; China profit declines on volumes/pricing, currency (particularly w eaker sterling), and execution risk on restructuring.
Porsche
NAV
Low er legal liabilities materialising from positive court rulings, and positive impact of currently-limited investment activities. Further risks include a higher share price for VW, and a
low er holding company discount.
Renault
ROIC
Key risks to our investment thesis include better/w orse diesel fallout than expected, better/w orse volumes particularly in Europe, LatAm, and Russia; changing view of profitability
especially on CO2 costs and Monozukuri efficiency programme; and changing perceptions of the possibility of a full merger w ith Nissan.
Volksw agen
ROIC
Dieselgate fallout, improving investor evaluation of risks driving a positive multiple re-rating, more dynamic sales grow th (ex-China), better pricing and mix, low er fixed costs and higher
product cost savings resulting in a higher ROIC.
Autoliv
ROIC
(1) Faster/slow er return of cash to shareholders; (2) higher/low er production volumes and active safety grow th; (3) FX moves; (4) raw material costs; and (5) valueaccretive/destructive acquisitions.
Continental
ROIC
Pricing pressure for the tyre business and lack of margin expansion in Autos.
Suppliers
Faurecia
ROIC + SOTP *
Potential acquisition, Changes in car production rates, organic grow th, raw material prices and FX rates, significant exposure to European car production.
AG and civil/military aircraft production rates, FX rates, raw material prices and a reduction in the groups pension deficit. Faster than expected ramp dow n of more profitable
programs in Aerospace and execution issues on the Fokker integration
Slow dow n in both auto production and penetration of the technologies to w hich Hella is exposed, increased pricing pressure, value destructive deals, FX moves and raw material
price moves.
GKN
ROIC
Hella
ROIC
Michelin
ROIC
Nokian
ROIC + SOTP *
Valeo
ROIC
Low er car production rates and organic grow th, w eak execution and movements in raw material prices and FX rates are key risks.
CNH Industrial
ROIC
Weaker farm incomes, pricing environment; w eaker truck demand and longer term, the threat of emerging market competition.
Volvo
ROIC
Key risks include w orse/better global macro grow th; FX moves; execution on the restructuring plan.
Low er/higher tyre volumes, pricing vs. raw material costs, FX rates and the pension deficit and any value-destructive/creative M&A.
Upside: its ability to gain a greater market share outside of Russia, and take advantage of its Russian cost base. Dow nside: Further deterioration in the Russian market.
Trucks
* we apply an 85% weighting to ROIC and 15% weighting to an M&A value (for which we use our SOTP value).
67
December 16, 2015
Europe: Automobiles
Exhibit 113: Reasons for 12-month price target and estimate changes
Target Price and Estimate Changes
Company
Comments
TP
EPS 15E
EPS 16E
EPS 17E
EPS 18E
BMW
23%
10%
11%
13%
22%
Daimler
1%
0%
-3%
-3%
7%
FCA
13%
8%
-20%
-7%
2%
FCA (US)
11%
Peugeot
6%
-2%
4%
-3%
-2%
Porsche
31%
-42%
-24%
-24%
-16%
Renault
18%
2%
2%
4%
6%
Volkswagen
29%
38%
-9%
-11%
-8%
Autoliv
9%
-1%
1%
-2%
-1%
Continental
7%
0%
-1%
-3%
-3%
Faurecia
14%
2%
2%
-1%
-0%
-4%
-11%
-8%
-6%
OEMs
(1) Updating for FX, (2) upgrading/cutting China/Europe volumes, (3) increased raw materials tailwind to reflect lower input costs.
Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 0.75x.
(1) Updating for FX, (2) cutting NAFTA/Europe volumes, (3) increased raw materials tailwind to reflect lower input costs. Adjusting
WACC, EV/IC:ROIC/FMCC to 8.0%, 0.7x.
(1) Evaluating core (ex-Ferrari) business using ROIC/SOTP methodology, and including a value for the Ferrari stake, (2) updating for
FX, (3) upgrading/cutting NAFTA/LatAm volumes, (4) increased raw materials tailwind to reflect lower input costs, (5) adjusting capex to
reflect new plan schedule. Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 0.8x.
(1) Updating for FX, (2) upgrading China volumes, (3) increased raw materials tailwind to reflect lower input costs. Adjusting WACC,
EV/IC:ROIC/FMCC to 8.0%, 0.55x.
Adjusting NAV for revised value (at our price target of 129) of VW stake.
(1) Updating for FX, (2) slight cut to Europe volumes, (3) increased raw materials tailwind to reflect lower input costs. Adjusting WACC,
EV/IC:ROIC/FMCC to 8.0%, 1.0x.
(1) Updating for FX, (2) 37% cut to NAFTA volumes on 2016-18E, (3) increased raw materials tailwind to reflect lower input costs.
Adjusting WACC, EV/IC:ROIC/FMCC to 10.0%, 0.8x, moving valuation horizon to 2016-17E, with average ROIC of 6.0%.
Suppliers
GKN
Hella
15%
--
2%
-2%
0%
Michelin
-4%
-16%
-3%
-4%
-7%
Nokian
8%
-27%
1%
1%
-1%
Valeo
5%
1%
-3%
-8%
-8%
CNH Industrial
12%
0%
-18%
-16%
-13%
CNH Industrial (US)
11%
--
--
--
--
Volvo
-10%
0%
-10%
-9%
-8%
(1) Updating for FX, (2) updating for production forecasts. Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 1.2x and move valuation
framework to avg 2016-20 from 2016 before
(1) Updating for FX (2) updating for production forecasts. Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 1.1x and move valuation
framework to avg 2016-20 from 2016 before
(1) Updating for FX, (2) updating for production forecasts, (3) factor in lower risk related to exposure to diesel engines and VW sales.
Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 0.85x
Reinstating from Not Rated. Updating for production forecasts and weaker AG markets.
(1) Updating for FX, (2) updating for production forecasts (3) lower risk related to exposure to VW sales. Adjusting WACC,
EV/IC:ROIC/FMCC to 8.0%, 0.9x and move valuation framework to avg 2016-20 from 2016 before
(1) Updating for FX, (2) updating for production forecasts, and (3) factoring in the announced restructuring and writedowns. Adjusting
WACC, EV/IC:ROIC/FMCC to 8.0%, 1.05x
(1) Updating for FX, (2) updating for production forecasts and (3) factoring in the annouunced additional tax charges. Adjusting WACC,
EV/IC:ROIC/FMCC to 8.0%, 1.4x
(1) Updating for FX, (2) updating for production forecasts, (3) higher 2016E EV/IC target multiple of 2.51 (was 1.96). Adjusting WACC,
EV/IC:ROIC/FMCC to 8.0%, 1.0x and move valuation framework to avg 2016-20 from 2016 before
Trucks
(1) Updating for FX, (2) incorporating weaker AG, CE outlook for 2016E. Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 1.0x and move
valuation framework to avg 2016-20 from 2016 before
(1) Updating for FX, (2) lowering North America truck volumes (2016E). Adjusting WACC, EV/IC:ROIC/FMCC to 8.0%, 1.0x
68
December 16, 2015
Europe: Automobiles
Valuation multiples
Exhibit 114: GS autos valuation multiples
On current price
2016E
39%
60%
46%
22%
18%
50%
38%
EV/Sales
2017E
36%
59%
45%
19%
15%
46%
34%
2018E
34%
57%
43%
17%
14%
43%
30%
2016E
6.1x
5.9x
5.1x
4.9x
3.6x
9.7x
7.3x
EV/EBIT
2017E
5.1x
5.4x
4.7x
3.6x
2.9x
8.2x
5.8x
2018E
4.6x
5.0x
4.4x
3.2x
2.6x
7.7x
4.6x
2016E
8.1x
9.4x
8.4x
9.1x
7.4x
7.5x
7.0x
P/E
2017E
7.0x
8.7x
8.0x
5.3x
7.2x
6.7x
6.2x
2018E
6.7x
8.4x
7.6x
5.0x
6.8x
6.6x
5.7x
Sales
2%
0%
2%
4%
1%
6%
1%
2015-18E CAGR
EBIT
6%
4%
4%
11%
5%
10%
4%
EPS
11%
6%
5%
27%
3%
5%
23%
109%
112%
116%
25%
91%
62%
100%
296%
74%
103%
106%
107%
23%
85%
57%
95%
282%
68%
97%
103%
98%
21%
80%
52%
91%
269%
63%
9.7x
11.7x
10.0x
5.3x
12.2x
7.9x
8.1x
12.8x
9.9x
8.8x
10.7x
9.1x
4.7x
10.3x
6.8x
7.6x
11.8x
9.0x
8.1x
10.4x
8.2x
4.1x
9.3x
6.1x
7.1x
11.2x
8.0x
13.1x
16.9x
13.5x
9.2x
13.0x
11.1x
10.6x
17.7x
13.2x
11.8x
14.9x
12.5x
8.3x
11.1x
9.8x
9.9x
15.3x
12.3x
10.9x
13.7x
11.6x
7.5x
10.1x
9.1x
9.4x
14.5x
11.3x
5%
8%
6%
4%
5%
5%
2%
6%
7%
10%
17%
7%
9%
10%
16%
3%
9%
10%
13%
20%
9%
15%
10%
17%
14%
11%
10%
Trucks
CNH Industrial
Volvo
59%
56%
61%
55%
54%
56%
50%
50%
50%
9.3x
9.2x
9.4x
8.0x
8.1x
7.8x
6.7x
6.9x
6.6x
13.3x
14.7x
11.9x
10.8x
11.4x
10.3x
9.1x
9.1x
9.1x
2%
2%
2%
11%
9%
12%
35%
64%
7%
Median
59%
55%
50%
9.3x
8.0x
6.7x
13.1x
10.8x
9.1x
2%
10%
13%
2016E
45%
62%
55%
29%
25%
57%
39%
EV/Sales
2017E
42%
61%
54%
26%
22%
53%
34%
2018E
39%
59%
53%
23%
21%
49%
30%
2016E
7.0x
6.1x
6.2x
6.5x
5.0x
11.1x
7.4x
EV/EBIT
2017E
5.9x
5.6x
5.7x
4.9x
4.2x
9.4x
5.8x
2018E
5.4x
5.2x
5.4x
4.4x
3.9x
8.8x
4.7x
2016E
9.4x
9.4x
9.8x
13.2x
8.9x
8.3x
7.0x
P/E
2017E
8.0x
8.8x
9.3x
7.6x
8.5x
7.4x
6.2x
2018E
7.6x
8.5x
8.9x
7.2x
8.2x
7.2x
5.7x
Sales
2%
0%
2%
4%
1%
6%
1%
2015-18E CAGR
EBIT
6%
4%
4%
11%
5%
10%
4%
EPS
11%
6%
5%
27%
3%
5%
23%
124%
117%
140%
32%
102%
74%
107%
334%
88%
117%
111%
129%
30%
96%
68%
102%
318%
82%
110%
108%
119%
28%
90%
62%
97%
303%
75%
11.1x
12.2x
12.0x
6.8x
13.7x
9.4x
8.7x
14.4x
11.9x
10.0x
11.2x
11.0x
6.2x
11.6x
8.2x
8.2x
13.4x
10.7x
9.3x
10.8x
10.0x
5.5x
10.5x
7.3x
7.7x
12.6x
9.6x
15.0x
18.0x
16.3x
11.5x
14.9x
13.0x
11.4x
19.5x
15.5x
13.5x
15.8x
15.2x
10.3x
12.8x
11.5x
10.7x
16.9x
14.6x
12.5x
14.5x
14.1x
9.4x
11.6x
10.7x
10.1x
16.0x
13.4x
5%
8%
6%
4%
5%
5%
2%
6%
7%
10%
17%
7%
9%
10%
16%
3%
9%
10%
14%
20%
9%
15%
10%
17%
14%
11%
10%
Trucks
CNH Industrial
Volvo
61%
61%
62%
57%
58%
57%
53%
54%
51%
9.8x
10.0x
9.5x
8.4x
8.8x
7.9x
7.1x
7.5x
6.7x
15.6x
18.1x
13.0x
12.6x
14.0x
11.2x
10.6x
11.2x
10.0x
2%
2%
2%
11%
9%
12%
35%
64%
7%
Median
61%
57%
53%
9.8x
8.4x
7.1x
15.0x
12.6x
10.6x
2%
10%
14%
OEMs
BMW
Daimler
FCA
PSA
Renault
VW
Suppliers
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
On target price
OEMs
BMW
Daimler
FCA
PSA
Renault
VW
Suppliers
Autoliv
Continental
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
Source: Goldman Sachs Global Investment Research, FactSet. [changed nokian eps cagr]
69
December 16, 2015
Europe: Automobiles
GS versus consensus
Exhibit 115: Our estimates versus Reuters consensus
Revenue
Cons
2016
GSe
% diff
Cons
EBIT
2017
GSe
% diff
Cons
2016
GSe
% diff
EPS
Cons
2017
GSe
% diff
Cons
2016
GSe
% diff
Cons
2017
GSe
% diff
OEMs
BMW
Daimler
FCA
PSA
Renault
VW
93,969
152,570
116,702
57,425
47,662
212,834
94,100
152,502
117,461
55,715
48,505
209,078
0%
0%
1%
-3%
2%
-2%
97,524
159,176
122,971
58,987
50,239
219,405
93,720
152,440
126,282
56,935
51,611
218,094
-4%
-4%
3%
-3%
3%
-1%
9,641
14,223
5,592
2,641
2,650
8,651
9,665
13,716
5,316
2,771
2,500
10,900
0%
-4%
-5%
5%
-6%
26%
10,098
14,883
6,359
2,812
3,003
11,843
10,308
14,447
6,761
3,017
2,900
12,849
2%
-3%
6%
7%
-3%
9%
9.66
8.80
1.46
1.76
11.99
11.55
10.05
8.90
1.37
2.13
11.66
18.47
4%
1%
-7%
21%
-3%
60%
10.18
9.21
1.95
1.97
13.77
21.90
10.79
9.38
2.37
2.21
13.02
20.84
6%
2%
21%
12%
-5%
-5%
Suppliers
Autoliv
Conti
Faurecia
GKN
Hella
Michelin
Nokian
Valeo
9,935
41,399
21,638
8,117
6,658
21,651
1,390
15,460
10,365
41,575
21,739
8,322
6,830
21,262
1,394
15,482
4%
0%
0%
3%
3%
-2%
0%
0%
10,551
43,564
22,413
8,425
7,024
22,501
1,483
16,596
10,949
43,665
22,397
8,660
7,171
21,871
1,482
16,417
4%
0%
0%
3%
2%
-3%
0%
-1%
983
4,775
962
686
519
2,638
311
1,166
989
4,850
1,025
730
534
2,600
323
1,150
1%
2%
6%
6%
3%
-1%
4%
-1%
1,061
5,085
1,024
762
554
2,792
341
1,290
1,084
5,150
1,090
806
598
2,730
353
1,250
2%
1%
7%
6%
8%
-2%
4%
-3%
7.29
15.65
3.41
28.08
3.35
8.48
1.77
10.16
7.26
15.92
3.63
28.17
3.28
8.20
1.86
10.19
0%
2%
6%
0%
-2%
-3%
5%
0%
8.08
16.88
3.77
30.65
3.64
9.24
1.97
11.26
8.24
17.14
4.04
31.65
3.72
8.76
2.14
10.88
2%
2%
7%
3%
2%
-5%
9%
-3%
26,341
313,153
25,601
303,888
-3%
-3%
26,915
324,788
26,481
315,569
-2%
-3%
1,712
21,852
1,562
19,788
-9%
-9%
2,020
24,306
1,746
22,658
-14%
-7%
0.45
7.18
0.44
6.45
-2%
-10%
0.53
8.29
0.57
7.49
7%
-10%
Trucks
CNHi
Volvo
Note GKN numbers above stated are as per company definition (rather than GS) to enable comparison with consensus. Hella (May 31 year-end) 2016/17 numbers relate to FY17 and FY18
Source: Datastream, Goldman Sachs Global Investment Research
70
December 16, 2015
Europe: Automobiles
Dividend and FCF yield

We see an average 2016E dividend yield of 2.7% in European autos, with suppliers (2.8%) having relatively lower
dividend yield than the OEMs (ex-PSA/FCA) at 3.6%) on average. We see an average FCF yield of 5.3% across our
coverage, with an average of 5.8% across the OEMs and 4.6% across the suppliers.
The only company with negative 2016E FCF yield is VW, due to a -6.7 bn cash outflow related to Dieselgate. Daimler has the
highest dividend yield and third highest FCF yield in our coverage at 5.4% and 7.2%, a key part of our buy thesis through strong
capital discipline, Daimler has surprised positively on cash generation, and we expect the company to generate an average 6.2 bn
over 2016-18E, comfortably supporting the average annual 4.6 bn dividend payments over the period.
Exhibit 117: FCF yield by company (2016E)
Exhibit 116: Dividend yield by company (2016E)
10%
6%
5%
8%
4%
6%
3%
2016E dividend yield
VW
Hella
Nokian
Autoliv
Valeo
CNHi
Michelin
Renault
Conti
Faurecia
GKN
FCA
BMW
-2%
Daimler
PSA
FCA
PSA
VW
Hella
Conti
Faurecia
Autoliv
Valeo
CNHi
GKN
Renault
BMW
Volvo
0%
Michelin
0%
Nokian
2%
Daimler
1%
Volvo
4%
2%
2016E FCF yield (pre-div)

71
December 16, 2015
Europe: Automobiles
Disclosure Appendix
Reg AC
We, Stefan Burgstaller, Ashik Kurian, Demian Flowers, Gungun Verma and Matthew Chan, hereby certify that all of the views expressed in this report accurately reflect our personal views about the
subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views
expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth,
returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage
universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,
ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month
volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make
comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well
positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on
quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Stefan Burgstaller: Europe-Autos & Auto Parts. Ashik Kurian: Europe-Autos & Auto Parts.
Europe-Autos & Auto Parts: Autoliv Inc., BMW, CNH Industrial, CNH Industrial, Continental, Daimler AG, Faurecia, Fiat Chrysler Automobiles NV, Fiat Chrysler Automobiles NV, GKN, Hella KGaA Hueck,
Michelin, Nokian Renkaat, Peugeot, Porsche, Renault, Valeo, Volkswagen, Volvo.
Company-specific regulatory disclosures

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant
published research
Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe
Rating Distribution
Buy
Hold
Investment Banking Relationships
Sell
Buy
Hold
Sell
Global
32%
53%
15%
63%
57%
52%
As of October 1, 2015, Goldman Sachs Global Investment Research had investment ratings on 3,221 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment
Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage
groups and views and related definitions' below.
Price target and rating history chart(s)

Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this compendium can be found in the latest relevant
published research
72
December 16, 2015
Europe: Automobiles
Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or
other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; for equity securities, market making and/or
specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.
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Europe: Automobiles
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December 16, 2015

Need for scale can force consolidation

While we see 2016 global car sales growth

In an investment-hungry sector already struggling

Suppliers improving ROIC, OEMs stand still

FCA and Conti CL-Buys

RATINGS AND PRICE TARGETS

Source: Goldman Sachs Global Investment Research. Priced December

Upgrade Hella to Buy, reinstate GKN at Buy

The Goldman Sachs Group, Inc.

We upgrade Hella to Buy on strong organic

Goldman Sachs does and seeks to do business with companies

December 16, 2015

Our sector in six charts

Exhibit 2: on relative earnings upgrades

Exhibit 3: Valuation remains attractive

Performance vs. EPS revision

Autos P/E relative to market

Travel & Leis

12m fwd. EPS revision

Exhibit 4: Overarching growth trend slowing

Exhibit 5: Market already paying for 2016E

Exhibit 6: FCA, Continental are our top picks

Upside/downside to 12-month price target

Sector ROIC vs. share-price implied ROIC

Autos P/E rel to market P/E

Source: IHS Global Insight, Company data, Goldman Sachs Global

Goldman Sachs Global Investment Research

Source: Company data, Goldman Sachs Global Investment

CNH Ind (US)

Global growth (RHS)

Triad (US, EU, JP)

Source: Company data, Goldman Sachs Global Investment

December 16, 2015

European autos in 2016: The state of play

Our key action ideas

Looking back to see forward: European Autos modestly outperformed in 2015

Returns drive valuation: Our ROIC valuation framework explained

BMW (BMWG.DE): Growth slowing, ROIC stalling; reiterate Sell

Fiat Chrysler (FCHA.MI): Delivering on growth; plus substantial optionality; CL-Buy

Peugeot (PEUP.PA): Steady operational progress with strategic optionality; Buy

Volkswagen (VOWG_p.DE): Many questions unanswered on the road to redemption; Sell

Porsche (PSHG_p.DE): Reflecting our negative VW view; Sell

Continental (CONG.DE): Improving growth outlook to drive re-rating; reiterate CL-Buy

Valeo (VLOF.PA): Best-in-class growth set to continue; reiterate Buy

Estimate changes and key risks to our price targets

Dividend and FCF yield

Goldman Sachs Global Investment Research

December 16, 2015

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Goldman Sachs Global Investment Research

December 16, 2015

European autos in 2016: The state of play

The SXAP in 2015: Rise and fall and resurgence

Broad dispersion within the sector

Goldman Sachs Global Investment Research

December 16, 2015

Suppliers to drive ROIC improvement while OEMs set to stand still

We reflect our preference for suppliers in our target multiples

Tyres and trucks likely to struggle to improve margins in 2016

A sector compelled to invest in change

Goldman Sachs Global Investment Research