Hedge funds boost short bets on European carmakers

Hedge funds have increased short positions in the bonds and shares of major European carmakers, targeting long-dated and perpetual debt as well as equities in 2026. Positions are concentrated on companies including Stellantis, Volkswagen, BMW and Mercedes-Benz.

Large funds reported to be active in the trades include Marshall Wace, Two Sigma, Kintbury Capital and Citadel Advisors. Market data show higher borrowing activity in long-dated bond issues and perpetual debt, instruments often used to gain short exposure. Equity short interest and bond borrowing have coincided with tens of billions of euros of market value loss for European automakers so far this year.

Investors cite faster product cycles from Chinese manufacturers, competitive pricing, advances in battery systems and stronger software features as factors reshaping competition. Data from the European Automobile Manufacturers’ Association show Chinese brands accounted for 8.5% of EU vehicle sales in the first four months of 2026, up from 6% in the same period a year earlier. BYD has said it will invest nearly €2 billion in European infrastructure through the end of 2027, including support for ultra-fast charging networks.

Specific securities under pressure include several long-dated Stellantis bonds that have seen elevated borrowing activity and Volkswagen perpetual debt with notable selling. Bonds issued by BMW and Mercedes-Benz have also recorded higher short interest. Traders point to the speed at which Chinese groups are introducing updated models and technology as a competitive factor.

Other risks named by investors include weakening demand in some markets and potential effects of US tariffs on trade and profitability. European manufacturers have responded by seeking measures to incentivise local production and by expanding partnerships and joint ventures with Chinese companies to secure lower-cost production and access to components and software.

Market participants describe the positioning as driven by long-term structural concerns rather than only short-term cyclical weakness. Credit and equity desks are monitoring liquidity and borrowing costs for long-dated and perpetual instruments because heavy shorting in those securities can influence wider financing conditions for the companies involved.