Investing.com -- Bank of America downgraded Stellantis (NYSE: STLA) to Underperform from Neutral and cut its price target to €5.5 from €7.5, while also lowering Renault to Neutral, citing accelerating competition from Chinese automakers in Europe.

Chinese brands have doubled their European market share to approximately 8%, with first-quarter sales surging roughly 100% year-over-year, according to the bank's analysis. Companies including BYD, SAIC/MG, Chery and Leapmotor are expanding beyond premium electric vehicles into compact, SUV and family-car segments where Renault, Stellantis and Volkswagen hold strong positions.

The shift comes as fuel efficiency becomes central to purchasing decisions in Europe, where pump prices remain structurally high. Battery electric vehicles maintain a total cost of ownership advantage, with energy representing only about 12% of ownership costs compared with approximately 26% for internal combustion engines.

Bank of America noted that Chinese manufacturers are moving toward local production in Europe, with S&P projecting around 25% of Chinese volumes will be locally produced by 2028, rising to approximately 32% by 2030. Local manufacturing helps reduce tariff costs and gain political acceptance in the European market.

For Stellantis, the bank projects fiscal 2027-2028 adjusted operating income margins of 2.9% and 3.2%, below consensus estimates of 3.6% and 4.5%. The bank said the company's turnaround remains unproven despite visible first-quarter reset benefits.

Renault faces margin pressure from battery electric vehicle mix, partner sales and raw materials, according to the analysis. The company's high exposure to Europe and B-segment vehicles leaves it vulnerable to Chinese pricing pressure.

Bank of America maintained its Buy rating on Volkswagen while reducing its price target to €99 for preferred shares and €105 for ordinary shares. The bank noted the stock trades at approximately 4-5 times forward price-to-earnings ratio.