What's going on?
Michelin’s shares plunged to a seven-year low on Friday after the French tire maker (and restaurant reviewer) said that it was slashing its growth forecasts amid slowing sales in Europe and China. The stock fell 11% on the news, and has now plummeted 27% since the start of 2018. Zut alors!
What does this mean?
Michelin reported lower demand for cars and trucks towards the end of its last quarter and expects the jam to continue for the rest of the year. The company’s blocked in on two sides. Western European car sales dropped 5% after a series of fuel emission scandals there led to the introduction of tougher testing. At the same time, people in China – the world’s biggest car market – are getting more picky about the vehicles they buy, reducing demand there by 5% as well. With fewer cars on the road, there’s less need to replace burned rubber.
Why should I care?
The bigger picture: A breather for the planet.
The combination of more rigorous tests in Europe and more discerning buyers in China does have its positives. For the last 60 years, greenhouse gas emissions have been growing; a trend the European Union’s tougher rules are intended to reverse. What’s more, Chinese petrolheads are increasingly switching to electric vehicles – something Ford and Tesla, among others, are betting big on.
For markets: Apply the emergency brake.
Michelin’s German rival Continental gave a warning of things to come when it cut its own forecasts in August; but Friday’s share price hit suggests investors hadn’t expected things to be this bad. Investors reacted quickly to avoid further unpleasant surprises: shares of US tire makers Goodyear and Cooper Tire fell 5% and 4% respectively, likely a reaction to Michelin’s bleak outlook. It’s unlikely things will improve dramatically anytime soon for automakers and their suppliers, with the US and China continuing to square off over trade and fears mounting that vehicle manufacturing and sales could suffer in a hard Brexit.