European car manufacturers, including BMW, Mercedes, and Volkswagen, face sharp stock declines due to weak demand in China, rising competition, and high electric vehicle costs, pushing investor pessimism to record levels.
ADVERTISEMENTThe European car industry is contending with a range of headwinds, pushing market valuations of top manufacturers such as BMW AG, Mercedes-Benz AG, Porsche, Stellantis, Renault, and Volkswagen at or near record lows.
These companies face significant challenges, from weakening demand in key markets such as China to intensifying competition in the electric vehicle (EV) space, which has eroded investor confidence.
BMW's profit warning: A tipping point
On Tuesday, BMW AG shares plunged by 11.2%, the company's largest single-day drop since March 2020. The dramatic selloff followed BMW's downward revision of its 2024 outlook, with the company cutting its automotive EBIT margin forecast to 6-7%, down from its previous estimate of 8-10%.
This downgrade was largely attributed to muted demand in China, one of BMW's most crucial markets.
Shares of BMW now trade at just four times their forecasted 12-month earnings.
Its market capitalisation (€43.8bn) is nearly equivalent to its reported automotive net cash (€43.2bn) at the end of the first half of 2024, highlighting the market's grim outlook for the company's future growth prospects.
European automakers' valuation hit crisis-like levels
This decline in valuation is not unique to BMW. Five of the six major European car makers have seen their stock prices plummet in 2023, with Stellantis and BMW being the hardest hit, both losing more than 30% of their market value.
Renault is an exception, posting a modest 3% rise year-to-date, although its valuation remains weak, in line with the rest of the sector.
Porsche AG stands as the only company screening a double-digit price-to-earnings ratio, yet even this is below its historical average.
Volkswagen, which has recently slashed production in Germany, marking the first closure of its factories in the country since 1938, now trades at just three times expected earnings, the lowest in its history.
The combined market valuation of Europe's six largest car makers stands at approximately €260bn, which is less than half of Tesla's market worth.
Falling sales across Europe
New car sales across Europe have also slumped.
According to George Galliers, an analyst at Goldman Sachs, August sales in key markets like France, Germany, Italy, and Spain recorded double-digit declines on a year-over-year basis, adjusting for selling days.
The annualised sales rate (SAAR) for these four nations dropped by 16.7%, reflecting the difficult macroeconomic environment in Europe.
"We believe visibility remains low due to political and macro uncertainties. Battery electric-vehicle sales remained under pressure posting large declines," Galliers wrote.
ADVERTISEMENTThe broader European car market is being weighed down by political uncertainties, rising inflation, and higher interest rates, all of which are affecting consumer spending.
In addition, electric vehicle (EV) sales, once a bright spot, are now facing hurdles due to high purchase prices and faster depreciation compared to traditional internal combustion engine (ICE) vehicles.
Germany's declining competitiveness
The German automotive industry, which forms the backbone of Europe's car market, has been particularly hard-hit by external competition.
Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, highlighted key challenges affecting German car manufacturers: "The most significant factor impacting the German manufacturing sector is the increasing loss of global market share of German car and machinery producers to competitors in China.
ADVERTISEMENT"Unfortunately, this problem is here to stay."
European carmakers all saw their market shares in battery electric-vehicle decline in 2024, as the latest Bank of America's Global EV Tracker shows.
Stellantis' market share dropped from 4.0% a year ago to 2.7% in July, and Volkswagen fell to 6.6% from 7.5%, while Mercedes-Benz saw its share shrink to just 1.9%.
Higher costs, slowing EV adoption
One of the significant challenges for the European auto industry is the high cost of EVs relative to ICE vehicles.
ADVERTISEMENTDespite offering lower running costs, the initial purchase price of battery electric vehicles remains about 20% higher than their internal combustion engine counterparts in major markets like Germany and France, even after government subsidies.
This higher cost, along with rapid advancements in EV technology, has resulted in faster depreciation of older models, further discouraging widespread EV adoption.
As Europe grapples with macroeconomic uncertainties and fierce competition from Asia, its car makers face an uphill battle to regain market confidence.
