European Car Manufacturers Face Bleak Outlook as Earnings Concerns Mount
The European automotive sector took a drastic hit on Monday, with stocks plummeting nearly 4% after a trio of major manufacturers sounded the alarm on their earnings prospects. The STOXX Auto & Parts index suffered a staggering $10 billion loss in market value, led by Stellantis, which saw its shares tumble 14% after slashing its forecasts and warning of increased cash burn.
The French-Italian automaker, which owns iconic brands such as Chrysler, Jeep, Fiat, Citroen, and Peugeot, cited deteriorating industry trends, heightened costs to revamp its US operations, and intensifying competition from Chinese electric vehicle makers. This perfect storm of challenges has led analysts to predict a dismal 14% decline in earnings for 2024, a stark reversal from the post-pandemic boom.
Adding to the sector’s woes, Volkswagen, Germany’s largest automaker, revised its annual outlook downward for the second time in as many months, citing ongoing trade union disputes and factory shutdowns. Meanwhile, luxury marque Aston Martin issued a profit warning, citing supply chain disruptions and weakness in the Chinese market.
As a result, Volkswagen shares fell 2.6% in Frankfurt, while Aston Martin’s stock plummeted 20% in London. Renault, another major European player, saw its shares drop 6% in Paris. Despite China’s latest economic stimulus measures, European auto stocks failed to rally, weighed down by concerns over falling earnings and valuations.
In fact, the sector is currently trading at a near-record discount of 60% to the market, according to LSEG Datastream estimates. This has led to a significant underweighting of autos among regional fund managers, who oversee a staggering $284 billion in assets. As the sector struggles to regain its footing, investors are bracing for a prolonged period of weakness, with some analysts predicting a recovery only in 2025.
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