Global car shares slide amid lower demand in China

(Image credit: John Keeble/Getty Images)

published 4 October 2024

Shares in luxury carmaker Aston Martin crashed by 20% after new CEO Adrian Hallmark admitted the company will have to cut targets for car production by a further 14%, say Robert Lea and Martin Strydom in The Times. These cuts, which mean production will now be down 40% from earlier predictions, are due to disruption in the supply chain, with “a number of its suppliers going bankrupt as well as continued macroeconomic weakness in China”. As a result, the company “will not be cash-flow positive in the second half of 2024”.

No wonder the stock slipped, says Hargreaves Lansdown’s Aarin Chiekrie. It’s impossible to rule out “further disappointments down the road”. The high debt level is a “real problem” and “makes it difficult to obtain additional debt financing should demand slip and the group run into trouble”. However, Aston Martin’s “high price point arguably offers it some level of protection” from general auto trends, given its buyers “aren’t typically short of cash”. This is important given that the group is “not alone in its struggles”. For some other carmakers, the outlook for demand is far worse.

Aston Martin is certainly not the only car company in trouble, says Lex in the Financial Times. Shares in the Netherlands’ Stellantis, which makes Peugeot, Fiat, Chrysler and Jeep vehicles, have also slipped after it predicted lower profits. And Germany’s Volkswagen lowered its annual guidance for the second time in three months on 27 September, while Mercedes-Benz and BMW have also issued profit warnings. All these firms are suffering from problems in the industry’s supply chains; moreover, sales of foreign cars have slid sharply in China.

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The lack of demand in China is particularly worrying for Volkswagen, Mercedes and BMW as they have now become “increasingly reliant” on selling vehicles to China’s “burgeoning upper middle class”, says Louis Goss on MarketWatch. They hope the fall in sales will end once the property market bottoms. However, the government is cracking down on “wealth flaunting” behaviours, while Chinese consumers are now increasingly starting to favour locally made cars, which are far cheaper and offer superior technology. European carmakers may, therefore, continue to lose market share.

Still, the car manufacturers’ difficulties may help the industry as they come at a “pivotal time”, says Neil Unmack on Breakingviews. European policymakers are about to make a decision on whether to go through with fines on companies for not meeting targets on carbon emissions. The case for at least a partial delay is now “strong”. Fears of increased Chinese competition will also “reinforce the case for tariffs, which many countries, including Spain and Germany, have been opposing”. Still, even if such policy help appears, it may be too little, too late. Stellantis and Volkswagen now trade at just 2.7 and 3.3 times trailing earnings: a “cry for help”.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.