(News Bulletin 247) – Faced with pressure on demand and prices, automobile groups have clearly disappointed, with one or two exceptions. Investors are waiting for better visibility on the sector.

Last year, the European automotive sector held up rather well. On the Paris Stock Exchange, the sector was even a source of satisfaction. Stellantis jumped 59%, the biggest increase in the CAC 40, and Renault outperformed the Paris index thanks to a nice 18% increase.

The situation looks very different in 2024. Since the beginning of the year, the pan-European Stoxx Europe 600 Automobiles and Parts index, which combines manufacturers and equipment suppliers, has fallen by more than 11% since January 1st. For manufacturers alone, the correction is proving violent. Only two stocks are moving in the green over the entire year (see infographic below): Ferrari (+37.65%) and Renault (+3.9%).

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And yet, these two exceptions deserve to be qualified. If Ferrari designs automobiles, its economic model based on the customization of its products for its wealthy clients, low volumes with limited production capacities, and a Dantesque “pricing power”, brings it closer to the largest luxury groups.

Bernstein analysts thus compare Ferrari to Hermès, more than to other automobile groups. This does not, of course, detract from the smooth execution of the transalpine group, which exceeded expectations in the first half, in terms of profitability, and raised its targets for 2024.

As for Renault, of course, the diamond group is (somewhat) holding its own, with the company managing to defend its profitability thanks to its cost discipline at the launch of its new models. Stifel even speaks of a “brightening” in a sluggish sector. But, in reality, the manufacturer has not escaped the correction in recent weeks. Over three months, the stock has returned 23.3%, and Renault has thus wiped out a good part of its gains on the stock market since the beginning of the year.

BMW and Volkswagen throw a chill

Because the bad news announced by competitors has prompted investors to sell the entire automotive sector.

Last week, BMW issued a heavy profit warning, mainly due to problems with a brake system supplied by Continental and the state of demand in China and the United States, two markets where Renault is absent. This did not prevent the diamond group from falling the same day, like all the other European manufacturers.

“This announcement adds to a long list of bad news for the sector and could push some investors to exit the car market completely while waiting for the bearish cycle to end,” Adrien Brasey, an analyst at the independent research firm Alphavalue, explained to News Bulletin 247.

A relatively similar pattern occurred on Friday, when Mercedes-Benz issued a heavy profit warning and saw its share price fall in Frankfurt, dragging down all the car groups in its wake, regardless of their positioning and geographical exposure.

The profit warnings also came after Volkswagen said earlier this month it was considering a major austerity drive, potentially including layoffs and plant closures in Germany.

Competition and regulatory uncertainty

Beyond these announcements, car manufacturers had to deal with an unfavorable environment. The market’s disaffection was thus gradual and, moreover, the manufacturers’ results were received coldly by investors, whether in the first quarter or over the entire first half.

“Several common factors have played a role. There are growing macroeconomic fears about demand and questions about the ability of manufacturers to maintain their prices in this less favourable context, with greater commercial intensity in recent months,” explains Michael Foundoukidis, analyst at Oddo BHF.

“Furthermore, there may be concerns about regulatory uncertainty. Next year, for European manufacturers, the CAFE regulation provides that, on average, their CO2 emissions will drop to 95 grams per kilometer, which would represent a 15% drop compared to 2021 and would require a sharp increase in sales of electric vehicles, which is far from obvious today despite the progress to come on the offer,” the analyst also argues.

“There are also more specific elements, such as China, where the market is undergoing a complete transformation. This mainly affects German manufacturers who used to make a significant portion of their results there, and are now losing a lot of market share in the growing electrification segment while experiencing a real price war,” he adds.

German manufacturers are clearly suffering, with Mercedes, Porsche, Volkswagen and BMW down 12%, 18.7%, 18.8% and 27% respectively since the beginning of the year. The British high-end Aston Martin (-27.6% since the beginning of the year) is not spared by the difficulties of the Chinese market, where its volumes have plunged by 72% over the first six months of the year.

The fall of Stellantis

But what about Stellantis, a stock that investors praised to the skies last year? Shares in the company led by Carlos Tavares have plummeted by 36.2% in 2024 and by nearly 50% over six months. Its current operating margin has shrunk to 10% in the first half of the year, compared to more than 14% a year earlier. The company is facing significant difficulties in its most important market, North America, where Stellantis is struggling to reduce its inventories.

Bernstein speaks of a “disgrace” of the group with investors. Carlos Tavares understood very well the gravity of the situation and cut short his vacation at the end of August to go to the North American headquarters to resolve these difficulties.

But Deutsche Bank stressed in July that reducing these inventories could involve substantial price cuts. The German institution also considered that Stellantis’ objective of generating a current operating margin of at least 10% in 2024 was “at risk”. “The worst is yet to come, as Stellantis strives to sell off its dealers’ inventories,” Bernstein added in August.

With this very difficult context, and the specific problems of each manufacturer, should we give up on European automobiles on the stock market in the coming months?

“There is clearly a negative market sentiment in the automotive sector, particularly linked to the current excessive uncertainty. But it is a sector of momentum, of dynamics,” replies Michael Foundoukidis.

“All it would take is a series of good news, a little more visibility on demand and prices, rate cuts having an effect or the regulatory environment becoming clearer, for the sector to rebound. Especially since valuations are already very low,” he concludes.