(Bloomberg) — Peugeot maker PSA Group’s profit margin widened to a record in the first half of the year as the French carmaker cut costs and used the sale of more expensive models as antidotes to the deepening slump in the global auto industry.
The company that also makes Citroen cars reported on Wednesday a first-half recurring operating margin of 8.7% at its automotive division, well above a target of at least a 4.5% over the 2019-2021 period. It also joined a chorus of rivals in confirming vehicle demand is slowing, predicting declines this year in both Europe and China.
“This is a hugely impressive result,” Evercore analyst Arndt Ellinghorst wrote in a note, adding that PSA is now the benchmark for margins of premium brand manufacturers. The shares rose 1.9% to 23.15 euros as of 11:19 a.m. in Paris, a three-month high.
PSA’s improved results stand out amid the gloom that has descended upon the sector as markets shrink. PSA depends heavily on European countries for its sales, which dropped 13% globally to 1.9 million vehicles in the first half. Daimler AG has issued a string of profit warnings and car part-makers Continental AG and Faurecia SA have significantly lowered their expectations for global vehicle production.
Read More: Europe Car Sales Extend Downward Spiral With Worst Drop of 2019
While the company’s earnings beat analyst expectations, its margin got a boost by excluding restructuring charges from operating profit, Bloomberg Intelligence analysts said. Those reflect cost-cutting initiatives at recently-acquired Opel and Vauxhall, but also Peugeot, Citroen and DS.
Chief Executive Officer Carlos Tavares told analysts he sees restructuring charges rising across European automakers due to the need to make electric and hybrid cars to comply with European regulations on car emissions. As the share of electric vehicles in PSA’s sales rise, the company will seek to offset the lower profitability of electric cars by accelerating cost cuts, he said.
Electric versions of half the lineup will be available by 2021, and across PSA’s entire product range four years later, according to a spokesman. In 2018, sales of all-electric and hybrid vehicles accounted for less than 1% of PSA’s registered sales. “We are ready for electrification and to embrace the next technological challenges,” Tavares said.
Since arriving in 2014, Tavares has turned around a struggling PSA by focusing relentlessly on cutting costs and adding scale. He reiterated Wednesday that the company is open to potential tie ups. PSA held talks with Fiat Chrysler Automobiles NV earlier this year to build a new “super platform,” yet the discussions failed to result in a deal. The Italian-American company then nearly slipped into the arms of French rival Renault SA, before that combination finally collapsed.
(Updates with analyst comment in seventh paragraph.)
To contact the reporter on this story: Ania Nussbaum in Paris at [email protected]
To contact the editors responsible for this story: Anthony Palazzo at [email protected], Tara Patel, John Bowker
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