Is the Smoke of Falling Auto Stocks an Indication of Impending Fire?

auto stocks

Auto stocks have been experiencing a downturn as of late. Last week, BMW may have only exacerbated the problem by revealing slow sales and a melancholy outlook for the future.

“Political and economic developments in Europe remain increasingly uncertain,” BMW said in its annual report Wednesday. It specifically cited the “unforeseeable impact of Brexit” and U.S. trade tensions with the European Union and China.

With U.S. President Trump determined to equalize trade, particularly between U.S and China, it is almost certain that goods and materials imported into the U.S. will be facing some sort of tariff into the foreseeable future. This has already negatively impacted the global auto market and will continue to do so.

“A possible introduction of further trade barriers, including anti-dumping customs duties and duties aimed at protecting national security by the U.S. administration, could have a significantly adverse impact on the BMW Group’s operations through less favorable conditions for importing vehicles,” BMW said. “Moreover, countermeasures by the USA’s trading partners could slow down global economic growth and have a greater-than-expected adverse impact on the export of vehicles produced in the USA.”auto stocks

The tariffs are not the only problem, however. Worries about general slowing in the economy have been building for a while now. FedEx executives also expressed worries recently over the slowing economy, and many key indicators point to a widespread slowdown, especially for the auto industry.

The Russell 3000 Auto & Auto Parts Subsector Index is up 7% year-to-date, but that trails the 10.3% gain in the Dow Jones Industrial Average. What’s more, that car index remains down 20% from its 52-week high. Falling auto sales in China, flat demand for cars in the U.S., and new, demanding European emissions standards are hurting investor sentiment.

In the wake of BMW’s announcement, shares of all three Detroit automakers declined by more than 2 percent in early morning trading. Shares of Ford fell 2.3 percent, Fiat Chrysler fell 2 percent and General Motors dipped 2.6 percent. This fall is an illustration of the volatility in the market today.

The theme of BMW’s earnings call is similar to that of Tesla’s recent call, which also highlights a slow in sales into the foreseeable future. Tesla is particularly vulnerable with a relatively high exposure in China. Tesla’s Chinese sales took a dip in 2018, falling to $1.8 billion from $2 billion a year earlier, for the same reasons BMW outlined.