European auto stocks fall after BMW warning By Investing.com

European auto stocks fell sharply following a warning from Bayerische Motoren Werke AG (WA:) that rocked the market.

Actions of Continental AG ON (ETR: ) fell 10%, BMW’s (ETR: ) own shares fell 8% and both Renault SA (EPA: ) and Mercedes Benz Group AG (ETR: ) fell 4.5%.

The German automaker cut its financial outlook for fiscal 2024, citing weaker sales, particularly in China, and problems with suppliers.

BMW has now adjusted its FY24 Automotive delivery guidance from a slight increase to a slight decrease. Additionally, the company revised its mid-point EBIT margin to 6.5% from 9.0% previously.

These changes reflect the carmaker’s expectation of a significant drop in Group Profit Before Tax (PBT), a stark contrast to the slight decline previously anticipated.

The company’s return on capital employed (ROCE) forecasts have also been cut for both the automobile and motorcycle divisions. Automotive ROCE is now expected to be between 11% and 13%, down from the previous range of 15% to 20%.

Similarly, the motorcycle division’s ROCE was adjusted to 14%-16% from the previous projection of 21%-26%.

In addition to the automotive sector, BMW’s motorcycle division also faces challenges. The company revised its FY24 motorcycle shipment guidance to flat year-on-year, as opposed to the slight increase that was previously expected.

EBIT margin in the middle of this division was also reduced to 6.5% from the original forecast of 9.0%. This downgrade is attributed to increased competition in key markets such as China and the US.

“We recently highlighted weaker growth in European sales, and continued weakness in China suggests that Q3 24 earnings for European cars will remain weak – after several declines in Q2 24 already. With 2H recovery expectations looking a bit optimistic, it remains hard to see the positive catalyst for BMW,” Citi analysts said in a note.