Friday, 27 September 2024 Reading time : 2 minutes

The economic slowdown in China is affecting European carmakers. In the past two weeks, Mercedes-Benz and BMW, two German luxury carmakers, have cut their profit forecasts for the current year. Both pointed to sluggish demand from China. «Economic growth in China has continued to lose momentum due to weaker consumption and the ongoing downturn in the property sector. This has affected sales volumes in China, including the premium segment, » Mercedes-Benz said when it issued its profit warning. The company does not expect demand to recover this year.

BMW also cited the caution of Chinese consumers as the reason for lowering its annual forecast. However, the carmaker expects demand to pick up in the final quarter.

China is the biggest market for the car industry, accounting for around 30% of global sales, some 25 million vehicles a year, according to financial services firm S&P Global.

The slump in consumer spending in China is only one of the reasons why European carmakers are struggling. In addition, they are increasingly facing strong competition from Asia, especially in the electric vehicle segment. Since the end of 2022, Chinese electric car giant BYD is selling more cars in China than Volkswagen, which had long held the top spot. As a result, Volkswagen's market share has shrunk from 19.3% in 2020 to 14.5% currently, Reuters reports. In the face of the adverse market environment, Volkswagen has announced extensive cost-cutting measures and is considering closing plants in Germany for the first time in the company's history.

The problems are reflected in the carmakers' share prices. The Stoxx Europe 600 Automobiles & Parts Index has lost around 2.2% since the beginning of the year (total return including dividends), while the overall market (Stoxx Europe 600 Index) has gained more than 13% over the same period. 

Individual stocks have performed even worse: Volkswagen shares have dropped 8.4% year-to-date and BMW is down 17%, while Mercedes-Benz has fared better (-0.6%).

The share prices of the three car companies have recovered slightly in recent days. Once again, China may be the catalyst: this week the Chinese central bank announced a stimulus package that includes interest rate cuts to boost the economy. Whether Europe's carmakers will actually benefit remains to be seen.

Barrier Reverse Convertible on European Car Makers
9.00% p.a. BRC on Volkswagen, BMW, Mercedes-Benz
Barrier: 65%
Valor: 135 805 789

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