European carmakers like Stellantis and Volkswagen are hitting speed bumps with declining demand in China and the US, and now potential tariffs on Chinese EVs aren't helping.
What does this mean?
Stellantis recently alerted investors to lower-than-expected profits, triggering an 11% dive in its stock, which has already plunged 38% this year. Aston Martin echoed this downtrend, warning about falling demand in China and causing its shares to plunge 20%. Major players such as Mercedes-Benz and BMW also issued profit warnings, while Volkswagen trimmed its 2024 profit forecast for the second time in three months, pushing shares down by over 2.8%.
European car firms are not only grappling with a weaker economy but also fierce competition from Chinese automakers. In August, new car sales in the EU dropped 18.3%, the worst in three years, sparking significant declines across key markets like Germany, France, and Italy. With EV sales also tumbling, companies like Stellantis have been forced to cut production and offer deep discounts, warning of negative cash flow up to 10 billion euros. Volkswagen's declining market share and dimming car demand could lead to plant closures in Germany, potentially sparking conflict with the IG Metall union.
The bigger picture: Revving up challenges.
The broader European car market is struggling with declining sales and fierce competition from Chinese EV makers, causing a significant drop in the sector's market value. While European automakers like Renault, Volkswagen, and Stellantis heavily invest in developing new and affordable EV models, their forward 12-month price-earnings ratios remain much lower than those of US rivals GM and Ford, and Toyota. As the EU considers tariffs on Chinese EVs, these companies face higher costs and even fiercer competition, leaving them with weaker cash flow and potential conflicts over plant closures and pay negotiations.