Rare'sell' rating on Volkswagen and Renault shares as Chinese competition increases

Shares of the biggest automaker in Europe, Volkswagen, as well as its French rival Renault experienced a steep decline on Friday after UBS analysts advised investors to sell the equities, citing a rising threat from Chinese rivals to their industry.

Renault fell 5.6% and Volkswagen 4.4% in late afternoon European trading, respectively, but the benchmark STOXX Europe 600 index remained unchanged.

On Thursday, analysts at the Swiss bank UBS reduced their "neutral" recommendation to "sell" for both stocks.

The authors of the research note are Patrick Hummel, David Lesne, and Juan Perez-Carrascosa. "We believe it unlikely VW can weather the upcoming Chinese advance without negative earnings impact," they wrote.

Volkswagen's largest single market is China, however because to pressure from regional rivals, sales there have been on the decline. BYD, a Chinese manufacturer of electric vehicles backed by Warren Buffett, beat Volkswagen to overtake it as the most popular brand in China during the first quarter of this year.