MW European car makers have hit a low point, Barclays says
By Louis Goss
Analysts shift ratings on a number of automakers after a barrage of profit warnings
After a string of profit warnings, the stock prices of leading European automakers may have bottomed, says a new analyst note.
Major European automakers including BMW, Volkswagen (XE:VOW3) and Mercedes-Benz have all posted profit warnings in recent months on concerns about falling sales in China.
Those companies have seen their sales slump in the world's largest car market as a result of a slowdown in China's economy and mounting competition from local rivals.
But in a note on Thursday, Barclays analysts said they believe the problems faced by Europe's top carmakers have now bottomed out.
Interest rate cuts and China's far-reaching stimulus packages could pave the way for auto manufacturers to rebound, the Barclays analysts led by Henning Cosman said.
The analysts explained that the structural issues facing European carmakers in China have already been factored into their stock prices.
A "reality check" in the second quarter of this year had already helped push down stocks in European carmakers prior to the recent barrage of profit warnings, the analysts said.
As such, there is now significant upward potential for European car manufacturers, even if they continue to face problems in China.
"The path of least resistance remains to the upside, as the global rate-cutting cycle and China stimulus keep a soft landing on track," Barclays analysts said.
The analysts, however, noted that Europe's carmakers continue to face structural issues in China, including from the risk of tariffs.
Mercedes-Benz (XE:MBG) is currently most exposed to the Chinese market, with 33% of its sales made in the country in the first half of 2024.
BMW (XE:BMW) is the second most exposed to China's market, with 27% of its revenue from the country, while Porsche (XE:P911) is third most exposed, with 18% of its sales from China, the analysts said.
Barclays analysts said China's recent stimulus packages will likely have little impact on sales of European cars in China, without significantly more stimulus directed towards the country's "middle class."
Barclays analysts upgraded BMW to an equal weight rating as they said a recent decline in the German company's Chinese sales had left it less exposed to the country's car market compared to rivals.
The analysts said BMW is now set to experience a "big reset" in the wake of its profit warning over slower Chinese sales and a recall related to a faulty breaking system.
Mercedes Benz Group was downgraded by Barclays' analysts to an equal weight rating on concerns about its high exposure to the Chinese market.
The analysts said Mercedes-Benz now faces a "new normal" in the Chinese market that will lead to a long-term drop in its sales in China. Mercedes-Benz, nonetheless, appears to have kept its shareholder returns policy unchanged.
Stellantis $(STLA)$ (IT:STLAM) - which owns brands including Chrysler, Dodge and Alfa Romeo - was also downgraded to an equal weight rating after it posted a major profit warning on Monday.
Barclays analysts said Stellantis' warning about slower sales in the U.S. had raised concerns about its ability to launch new dividend and share buyback initiatives.
Porsche Automobil Holding (XE:PAH3), which is currently Volkswagen's top shareholder, was downgraded by Barclays analysts to underweight from equal-weight, who said the firm's investment plans are misaligned with current market preferences.
The analysts explained that investors would prefer that the holding company make higher returns in the form of share buybacks or dividends, instead of pursuing its current plans for more acquisitions.
-Louis Goss
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(END) Dow Jones Newswires
October 03, 2024 07:34 ET (11:34 GMT)
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