All's not well with autos - Franklin Templeton

ALL'S NOT WELL WITH AUTOS - FRANKLIN TEMPLETON

Europe's earnings season is about to kick off and woes in the auto sector are already front of mind, leading Michael Browne, global investment strategist at Franklin Templeton Institute to conclude "all's not well" in the space.

He points to last week's news that German automaker BMW BMW cut its 2025 earnings forecast.

"A profit warning from BMW cited two issues: First, sales volume and pricing in China are weakening, and the company does not expect an improvement any time soon," he writes in a note, also mentioning the fact that a "high three-digit millions" rebate due to the company will not be paid until 2026.

"Put the two together and cash flows halve for 2025."

Bad news in the sector has continued.

Shares in tire maker Michelin ML are down as much as 11% on Tuesday after it issued a profit warning, something Browne says echoes BMW's announcement last week.

"Mercedes, in a call with stock analysts, pointed out that third-quarter sales in China are -27% year-over-year," he adds.

"But the warning from Ferrari hurt the most."

Ferrari's RACE shares fell more than 15% on Thursday after announcing new financial targets.

"The conclusion I come to from Europe’s auto sector is that Chinese demand is weakening, and this fact, coming on top of US tariffs, makes 2026 very uncertain, even for Ferrari," says Browne.

(Lucy Raitano)

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