Barclays downgrades Mercedes-Benz, upgrades Porsche amid market shifts

Investing.com — Barclays (LON:BARC) analysts have revised their positions on two leading German automakers, downgrading Mercedes-Benz (OTC:MBGAF) Group AG to “underweight” while upgrading Porsche AG (OTC:DRPRY) to “overweight,” reflecting a shift in market dynamics and expectations for earnings trajectories.

Barclays revised its rating on Mercedes-Benz to “underweight” from “equal weight,” slashing the price target to €48.50 from €65. 

This follows its disappointing Q3 results, with the automaker’s Cars division reporting an operating margin of 4.7%, much below market expectations of 5.4%. 

Analysts cited declining average selling prices, dealer incentives, and one-off charges related to warranty provisions and electric vehicle (EV) stock clearances as key contributors to the earnings shortfall.

Barclays project a diminished operating margin of 6-7% for Mercedes-Benz Cars in 2025-2026, compared to earlier forecasts. 

Market headwinds, including softening top-end vehicle sales in China and the U.S., add to the company’s challenges. 

While management has outlined structural efficiency plans, analysts remain cautious about their impact, particularly in light of stringent EU CO2 compliance requirements and intensifying EV competition.

Conversely, Porsche AG has been upgraded to “overweight” from “equal weight,” with analysts maintaining a price target of €70. 

The automaker’s stock has underperformed the broader European autos index year-to-date, but Barclays sees an opportunity for recovery, describing the company’s 2025-2026 earnings trajectory as “rebased.” 

Following a challenging year marked by profit warnings, Porsche now appears better positioned for growth, with >10% annual EPS increases projected for 2025 and 2026.

Porsche’s strength lies in its pricing power and a robust product mix, supported by new model launches such as the E-Macan and 911 GTS. 

The company has also emphasized cost efficiency, aiming to achieve high profitability even at a volume level of 250,000 units. 

Despite uncertainties regarding volume and margin targets for 2025-2026, Barclays anticipates resilience relative to peers, driven by brand loyalty and stable pricing trends​.

Barclays underscores a more constructive outlook for European automotive suppliers, upgrading its view on the sector to “neutral” from “negative.” 

This shift stems from a stabilized cost and operating environment alongside sharply reset earnings expectations. 

Analysts see potential for select offensive positioning in 2025, particularly among suppliers like Continental and Forvia. 

Both are positioned to capitalize on cost-saving initiatives and deleveraging efforts following years of post-COVID challenges.

However, tariff risks remain a significant overhang, especially potential 10-25% U.S./Mexico tariffs. These risks, partially priced in, could create headwinds for global light vehicle production. 

Still, analysts find stocks at compelling valuations, trading at multi-year lows relative to historical multiples. 

Barclays views the broader European automotive industry as gradually improving, despite ongoing challenges such as tariff threats and VW strike risks. 

Stabilized global light vehicle production, normalization of input costs, and improved cost efficiencies are expected to underpin a better operating framework in 2025. 

This backdrop supports renewed optimism for the sector’s free cash flow generation and shareholder returns.

Barclays envisions 2025 as a potential “vintage year” for European auto suppliers and select OEMs, with risks tempered by more de-risked earnings expectations. 

Nonetheless, the sector’s path to recovery will depend on the resolution of tariff uncertainties, sustained cost efficiencies, and effective navigation of evolving market dynamics.