Car sales are falling as demand from China drops; analysts also have doubts about Stellantis

(Il Sole 24 Ore Radiocor) - A difficult trading session for European automotive shares, with the sector’s Euro Stoxx index falling by as much as over 1.4 per cent, making it one of the worst-performing indices. In Germany, a study by the Ifo Institute shows that, since 2019, the automotive industry and its suppliers have cut 123,500 jobs, representing a 13 per cent decline. “New jobs are, for the most part, not being created in sectors where Germany is particularly productive and innovative. This could slow down future growth potential,” says the Ifo. The slowdown in figures in China, where car sales fell by 28.1 per cent compared with the previous year (around 1.63 million registrations in September), following a -23.7 per cent drop in August. This year, Beijing has relied heavily on exports to sustain growth, but pressure is mounting as domestic demand remains weak and trade tensions with the European Union intensify.

The EU has drawn a new line in the sand. Under the latest trade agreement with China, annual exports of Chinese hybrid cars to Europe will be capped at 350,000 units, a figure broadly in line with that forecast for 2026. “In the short term, this should give European manufacturers some breathing space, particularly those that have already formed alliances with Chinese partners, such as Renault with Geely and Stellantis with Leapmotor. As these partnerships lead to increased local production, the joint ventures become a form of industrial defence, allowing Chinese technology to enter the European manufacturing sector directly. But the biggest wave is yet to come,” explain the analysts at Carmignac.

Firstly, the cap on hybrid car exports addresses only part of the problem. The majority of China’s car exports still consist of electric and internal combustion engine vehicles, leaving ample scope for further expansion.

Secondly, tariffs might simply alter the route, without changing the destination. If exporting to Europe becomes more difficult, the most logical response is to manufacture directly in Europe. Consequently, Stellantis, which has also been hit by a report from Equita that has revised its third-quarter estimates downwards, as has Renault , Mercedes-Benz Group and BMW. As for Stellantis, which in recent days had expressed its approval of the Franco-German agreement on the automotive sector (the deal aims to lower the EU’s CO₂ emission targets for 2035), the spotlight is already on its third-quarter results, due on 28 October.

For analysts, the focus will be on free cash flow, particularly as the company has so far provided only qualitative guidance (confirmation of the recovery, as anticipated by the company, will therefore only be available at the end of January when the full-year results are published, unless management provides more precise quantitative guidance on targets next week). ‘It is well known that the third quarter absorbs cash for seasonal reasons; however, no historical data on quarterly performance is available as Stellantis has only begun publishing full quarterly figures this year – in the third quarter of 2025, FCF was negative by 4.3 billion (unaffected by significant non-recurring factors), whilst the FFC for the third quarter of 2026 will be penalised by a 1 per cent decline in volumes, with a negative impact on adjusted EBIT”, explain the analysts at Equita, who have revised downwards ‘estimates and targets for 2026–2027’, whilst remaining above the consensus.