European carmakers face a tough economic environment marked by weak demand and rising costs, leading several high-profile companies to issue profit warnings. Stellantis, the world’s fourth largest automaker, announced today that it is facing declining demand in key markets such as China and the United States, as well as the looming threat of a trade war between the European Union and Beijing. The EU is finalizing tariffs on Chinese electric vehicles due to alleged subsidies.
The impact on the market value of the sector has been significant, with billions of euros lost. Shares of Stellantis fell nearly 11%, hitting their lowest level since December 2022. The company’s shares are down 38% this year, making it the worst-performing automaker in Europe.
Aston Martin (LON:) also issued a warning on its annual profits today, citing falling demand in China among the reasons. Its shares took a major hit, falling as much as 20% to a nearly two-year low. Earlier this month, other luxury car makers such as Mercedes-Benz and BMW (ETR:) issued similar warnings.
Volkswagen, another major player in the auto industry, cut its 2024 profit outlook for the second time in less than three months. That announcement came late Friday, and by Monday, Volkswagen shares had fallen more than 2.8%.
These companies have been heavily dependent on the Chinese market, which accounts for about a third of their sales. However, they now face a weaker economy in China, increased competition from domestic automakers and an intense price war in the electric vehicle (EV) sector.
In Europe, new car sales declined, falling 18.3% in August, hitting a three-year low. Large markets like Germany, France and Italy saw significant losses, and EV sales also declined.
Stellantis was particularly affected by the situation in North America, where the company misjudged market demand. The company has been forced to cut production and offer deep discounts on depreciating vehicles at dealerships.
As a result, Stellantis cut its adjusted profit margin forecast for the year to between 5.5% and 7%, from double digits previously, and warned of negative cash flow ranging from €5 billion to 10 billion euros.
Forward 12-month price-to-earnings ratios for European automakers are around 3, significantly lower than their U.S. counterparts like GM and Ford, as well as Toyota, the world’s largest automaker.
European automakers’ struggle also comes from growing competition from Chinese rivals who can develop better, cheaper EVs at a faster pace. As traditional European automakers invest heavily in developing new, more affordable models and transitioning production lines, they face cash flow challenges and capacity utilization issues at their factories.
Volkswagen’s declining market share in China and falling demand in Europe have pushed the company to consider factory closures in Germany, risking conflict with the IG Metall union. Wage negotiations between Volkswagen and the union began last week.
Reuters contributed to this article.
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