Barclays downgrades Porsche, Mercedes and Stellantis as crisis worsens Investing.com

Investing.com — Barclays downgraded Porsche, Mercedes Benz Group AG (ETR: ) and Stellantis (NYSE: ) as the European auto sector continues to face deepening challenges. The revisions come after significant profit warnings and a sharp correction in the sector, which has been under pressure from multiple structural and cyclical risks.

Dr Ing hc F Porsche AG Preferred (ETR:) was downgraded to Underweight, with Barclays cutting its price target to €35.

The downgrade comes amid warnings from other German automakers, including Volkswagen (ETR: ) and BMW (ETR: ), which have been hit hard by market forces. Barclays highlighted ongoing risks such as margin pressure, saying that while Porsche’s setup is strong in 2025, “execution risks” and “high relative valuation” remain concerns.

Mercedes-Benz (OTC: ) was downgraded to Equal Weight with the price target reduced to €65. The report highlighted concerns about the “new normal” for the company’s margins and auto free cash flow (FCF) as key factors in the downgrade.

Finally, Barclays cut its Stellantis rating to Equal Weight and its price target to €12.5 following a major profit warning from the automaker.

The firm admitted that “€6 billion FCF in the medium term is not inconceivable” for Stellantis, however, the automaker faces challenges from a tougher market environment, including cost pressures and competition, which have led to lower expectations for earnings and profitability.

Analysts said it downgraded all three stocks despite their strong FCF and Total Shareholder Return (TSR) reviews, even after a big earnings reset.

They note that “the magnitude of near-term warnings will still require some time for some of the market to digest, in our view, before they become familiar with the ‘new normal’ medium-term EBIT margins and FCF levels to enable true re-engagement with these names.”

“In the meantime, we believe any near-term strength will more likely be viewed as a ‘pain trade’ by the market,” the analysts added.

Barclays also remains cautious on the European auto sector in general. While the sector has seen large valuation resets, allowing for attractive free cash flow and potential for total shareholder returns for some automakers, the report points out that investors cannot ignore “structural risks” such as “eroding the bottom line of China, CO2 compliance costs, BEV transition, ‘and tariff risks between the EU, China and the US.

However, analysts upgraded the EU Auto & Parts sector rating to Neutral from Negative, saying they “do not believe it is opportunistic to remain negative on EU Auto at this time after the sharp correction.”