LONDON: European carmaker Stellantis on Monday joined bigger rival Volkswagen and others in warning about the worsening outlook for auto demand and rising costs, wiping billions of euros off the sector's market value.
The companies are struggling with weak demand in China and the United States and a potential trade war between Beijing and the European Union as the EU prepares to finalise import tariffs on Chinese electric vehicles, imposed over alleged subsidies.
British luxury carmaker Aston Martin also partly blamed falling demand in China for a full-year profit warning on Monday, as did Mercedes-Benz and BMW earlier this month.
The latest warnings follow Volkswagen's announcement late on Friday that it was cutting its 2024 profit outlook for the second time in under three months.
The German car giants have been reliant on China for around a third of their sales and have been hit by the weaker economy there, fiercer competition from domestic Chinese automakers and a vicious price war in the electric vehicles (EV) market.
Falling European demand has not helped. New car sales in the EU fell 18.3% in August to their lowest in three years with double-digit losses in major markets Germany, France and Italy and sliding EV sales.
But many of Stellantis' problems stem from North America.
The expensive Jeeps and pickup trucks it sells in the US market have generated virtually all its profits since the automaker was formed by the 2021 merger of FCA and PSA, and have made its profit margins the envy of its mainstream peers.
But high inventories and weak sales as Stellantis has somehow misjudged its cash cow market has forced it to cut production while also offering deep discounts on the vehicles depreciating on dealer lots across America.
As a consequence, Stellantis has slashed its adjusted profit margin for the year to between 5.5% and 7%, down from double digits, and warned of negative cash flow of between 5 billion euros (US$5.6 billion) and 10 billion euros.
In a client note after Stellantis' investor relations team held a conference call with investors, Bernstein analysts wrote that the company had been slow to address concerns over the size of its US inventories.
"Today's cut ... signals a drastic about-face," they wrote. That lack of speed, "management's conspicuous absence during today's call" and concerns over pricing discipline "will require a significant effort to rebuild trust going forward."
Forward 12-month price-earnings ratios, a measure of a company's market value, for the three biggest European carmakers - VW, Stellantis and Renault - are around 3, much lower than US rivals, GM and Ford and the world's largest carmaker, Toyota.
Where traditional European automakers' problems intersect is rising competition from Chinese rivals who can develop better, cheaper EVs faster than Volkswagen, Stellantis or Renault can.
They are also struggling to sell the EVs they are making, while investing large sums to develop new, more affordable models.
Adding to Stellantis woes is its recall of 194,000 plug-in hybrid electric Jeep SUVs to address fire risks after 13 fires were reported.
It told owners to park outside and away from other vehicles until recall repairs are completed.
It is recalling some 2020 through 2024 model year Jeep Wrangler and 2022 through 2024 Jeep Grand Cherokee plug-in hybrids. The issue involves a battery component, the company said.
The Chrysler-parent company said the fires occurred when the vehicles were parked and turned off. It estimates 5% of affected vehicles may have the defect.
Stellantis said vehicle risk is reduced when the battery charge level is depleted and said owners are advised to refrain from recharging and should park away from structures or other vehicles. The company said a remedy is imminent.
The recall includes 154,000 vehicles in the United States, 14,000 in Canada, 700 in Mexico and nearly 26,000 outside North America.
The company said the recall was prompted by a routine company review of customer data that led to an internal investigation.
