Barclays Lowers Ratings for Porsche, Mercedes, and Stellantis Amid Escalating Crisis

Barclays has downgraded its ratings for Porsche, Mercedes-Benz Group AG, and Stellantis as the European automotive sector faces escalating challenges. These revisions follow significant profit warnings and a pronounced correction in the sector, which is struggling with various structural and cyclical risks.

Porsche’s stock was downgraded to Underweight, with Barclays reducing its price target to €35. This downgrade reflects concerns raised by other German automakers, including Volkswagen and BMW, which have also been adversely impacted by market conditions. Barclays noted ongoing risks such as margin pressures, expressing that while Porsche’s outlook appears strong through 2025, there are “execution risks” and a “high relative valuation” that remain concerning.

Mercedes-Benz’s rating was lowered to Equal Weight, with its price target set at €65. The report cited apprehensions about the company’s margins and auto free cash flow as significant factors in this downgrade.

Stellantis also saw its rating downgraded to Equal Weight with a price target adjusted to €12.5 following a notable profit warning from the company. Barclays recognized that achieving €6 billion in mid-term free cash flow is feasible for Stellantis, but the automaker is confronting a challenging market landscape, characterized by cost pressures and increased competition, which has diminished earnings and profitability expectations.

Analysts indicated that the downgrades were issued despite the strong performance indicators for free cash flow and total shareholder return, even after substantial earnings adjustments. They highlighted that the substantial warnings issued within a short timeframe will require the market some time to absorb before it becomes comfortable with the “new normal” levels of mid-term EBIT margins and free cash flow, necessary for a genuine re-engagement with these stocks.

In the meantime, analysts believe that any short-term gains will likely be viewed by the market as a “pain trade.”

Barclays remains cautious regarding the overall European automotive sector. Although the sector has experienced significant valuation adjustments that present attractive opportunities for free cash flow and total shareholder return for some manufacturers, the report emphasizes the need for investors to consider “structural risks” such as profit pool erosion in China, CO2 compliance costs, the transition to battery electric vehicles, and tariff risks among the EU, China, and the US.

Despite these concerns, analysts have upgraded the EU Autos & Parts sector rating to Neutral from Negative, suggesting that it is no longer prudent to maintain a negative outlook on EU autos after the recent sharp correction.