China Is Killing the Q3-2024 Earnings Party

We had suspected that the Chinese component of the European issuers could misfire, not to mention the tariff risks made clear from late 2023 (see “China punches European luxury dreams"; Jan 2024).

That chicken has now come home to roost with the European car manufacturers reducing their guidance, LVMH having published dismal Q3 figures and expressed doubts about the Q4, and ASML having dropped its 2025 revenue ambitions.

As an exporting region, Europe lost the Chinese plot about 2 years ago when Chinese leadership decided that growth if any would be through more Chinese consumption (still sputtering for now) and exports of sophisticated manufactured products (a great success). China has no need for Western products. The illusion that European brands are a must-have for Chinese consumers may be unravelling fast.

European groups have been relatively discreet about the extent of their business in China as the political environment has proved increasingly difficult for non Chinese entities with assets in China. Reported sales in China tend to be bunched as Asian sales as a typical way to keep information confidential. That adds insult to injury for investors who might be wondering about this as it is very hard to compute the impact of Chinese operations getting more difficult.

Note also that China is not only an export market drying up. It is a formidable competitor once its exports reach Western shores. Chinese EVs have yet to show up in European showrooms but they have already hammered industry price points. The same can be observed in the destructive power of Temu facing the likes of Asos and Next. It is not a big bet to assume that, when it comes to the provision of equipment to industry, China is also fast gaining market share (think batteries, industrial electronics, photovoltaic cells, sensors of any description, etc.). 

In short it would be a surprise were the pricing power of European industries not to be under lasting pressure, whether or not they export to China.