European Auto Stocks Decline

By Danilo Masoni

MILAN (Reuters) – European auto stocks plummeted nearly 4% on Monday following warnings from Stellantis, Volkswagen, and Aston Martin, raising concerns about the sector’s earnings outlook amid dwindling demand and fierce competition from China.

The decline erased almost $10 billion from the market value of the STOXX Auto & Parts index. Stellantis, listed in Paris and Milan, saw a 14% drop after revising its forecasts and announcing increased cash burn.

As Europe’s fifth-largest automaker by market value, Stellantis, which includes brands like Chrysler, Jeep, Fiat, Citroen, and Peugeot, attributed its struggles to worsening industry trends, high costs of revamping its U.S. operations, and competition from Chinese electric vehicle makers.

Citi analysts predict that the sector’s issues will continue in the coming weeks, with a recovery for Stellantis unlikely until 2025, when it expects to reset inventory for better comparisons. “Current weakness is expected to persist into October, ahead of a cyclical rally between November and January, spurred by global rate cuts,” noted Citi analyst Harald Hendrikse.

Forecasts indicate a 14% decline in earnings for 2024, reversing the uptrend observed post-pandemic when supply chain disruptions allowed automakers to raise prices.

In a separate development on Friday, Volkswagen revised its annual outlook downward for the second time in less than three months amid disputes with trade unions over significant plans to close factories in Germany. Aston Martin also cautioned about lower annual core profits and reduced production forecasts due to supply chain issues and softening demand in China.

As of 0928 GMT, Volkswagen stocks fell 2.6% in Frankfurt, with Aston Martin’s shares plummeting 20% in London. In Paris, Renault shares dropped by about 6%, while the broader STOXX 600 index eased by 0.6%.

While stocks in China surged on economic stimulus measures from Beijing, this sentiment did not extend to European automotive shares. Earlier this month, both Mercedes-Benz and BMW had downgraded their forecasts due to slackening demand in China, the world’s largest car market.

Fears over declining earnings have increased pressure on valuations, with the sector trading at a near-record 60% discount to the market based on price-to-earning metrics, according to LSEG Datastream estimates. Despite this, automotive stocks remain the most underweighted sector among regional fund managers managing $284 billion, as revealed by a recent BofA survey.