Stellantis Joins Rivals in Cautioning About Auto Market Decline

By Nick Carey

LONDON (Reuters) – European carmaker Stellantis (NYSE:STLA) has joined bigger rival Volkswagen (ETR:VOWG_p) and others in warning about a declining outlook for auto demand and rising costs, which has wiped billions of euros off the sector’s market value.

Weak Demand in Key Markets

The automakers are facing weak demand in China and the United States and potential trade tensions between Beijing and the EU as the bloc moves to finalize import tariffs on Chinese electric vehicles over alleged subsidies.

Aston Martin, a British luxury carmaker, also issued a full-year profit warning on Monday, attributing it partly to falling demand in China. This followed similar warnings from Mercedes-Benz (OTC:MBGAF) and BMW (ETR:BMWG) earlier this month.

Aston Martin’s shares plunged as much as 20%, reaching their lowest point in nearly two years.

Shares in Stellantis fell nearly 11%, the lowest since December 2022, as investors assessed the depth of the challenges facing the world’s fourth-largest automaker. Stellantis’ stock has fallen 38% this year, marking it as Europe’s worst-performing automaker.

The warnings coincide with Volkswagen’s announcement on Friday of reduced profit outlook for 2024, its second cut in under three months leading shares to drop over 2.8% in mid-morning trading on Monday.

Competition and Economic Strains

The German automakers rely on China for a significant portion of their sales but have been adversely affected by a weaker economy and fierce competition from local Chinese manufacturers, coupled with an aggressive EV price war.

Declining demand in Europe is also a concern. New car sales in the European Union fell 18.3% in August to their lowest levels in three years, particularly impacting major markets like Germany, France, and Italy, alongside decreasing electric vehicle sales.

Most of Stellantis’ troubles originate in North America, where high inventories and weak sales in the lucrative U.S. market have forced significant cuts in production and deep discounts on vehicles. Stellantis has reduced its adjusted profit margin guidance for the year to between 5.5% to 7%, down from double digits, while warning of negative cash flow between 5 billion euros ($5.6 billion) and 10 billion euros.

Challenges from Rivals and Future Outlook

The forward 12-month price-earnings ratios for Europe’s top three carmakers—VW, Stellantis, and Renault (EPA:RENA)—stand around 3, significantly lower than their U.S. counterparts GM, Ford (NYSE:F), and Toyota (NYSE:TM), the world’s largest carmaker.

European automakers face rising competition from Chinese manufacturers capable of producing better, cheaper EVs more swiftly. Meanwhile, they struggle to sell their own EVs while needing to invest in new, more affordable models.

Transitioning production lines for new models diverts capacity from revenue-generating operations, further straining cash flow for legacy automakers already grappling with low capacity utilization.

Falling market share in China and reduced demand in Europe have prompted Volkswagen to contemplate possible plant closures in Germany, creating tension with the influential IG Metall union, with pay negotiations reportedly starting last week.

($1 = 0.8948 euros)