European car stocks experienced a sharp decline following a warning from Bayerische Motoren Werke AG (WA:BMW) that rattled the market.
Shares of Continental AG O.N. (ETR:CONG) plummeted by 10%, BMW (ETR:BMWG)'s own shares fell by 8%, and both Renault SA (EPA:RENA) and Mercedes Benz Group AG (ETR:MBGn) saw a 4.5% drop.
The German automaker reduced its financial outlook for the fiscal year 2024, citing weaker sales, particularly in China, and supplier issues.
BMW has now adjusted its Automotive FY24 deliveries guidance from a slight increase to a slight decrease. Furthermore, the company has revised its EBIT margin mid-point down to 6.5% from the previous 9.0%.
These changes reflect the automaker's expectations of a significant decrease in Group Profit Before Tax (PBT), a stark contrast to the slight decrease previously anticipated.
The company's Return on Capital Employed (ROCE) forecasts for both its Automotive and Motorcycle divisions have also been lowered. The Automotive ROCE is now expected to be between 11% and 13%, a reduction from the former 15% to 20% range.
Similarly, the Motorcycle division's ROCE has been adjusted to 14%-16% from the earlier projection of 21%-26%.
In addition to the automotive sector, BMW's Motorcycle division is also facing challenges. The company has revised its FY24 deliveries guidance for Motorcycles to flat year-over-year, as opposed to the slight increase that was previously expected.
The EBIT margin mid-point for this division has also been decreased to 6.5% from the initial forecast of 9.0%. This downgrade is attributed to increased competition in key markets such as China and the USA.
"We recently highlighted weaker European sales growth, and continued China weakness all suggest that Q3 24 earnings for European autos will remain weak – after several guide-downs in Q2 24 already. With China only getting tougher, and BMW overexposed to China, and with 2H recovery expectations looking a bit optimistic, it remains tough to see the positive catalyst for BMW," Citi analysts said in a note.