Investing.com -- Shares of Inchcape (LON:INCH) took a hit on Thursday, plunging more than 10% after analysts at J.P. Morgan downgraded the stock to a "neutral" from an "overweight" rating.
The downgrade reflects growing concerns over increased market volatility and challenges facing Inchcape in key regions such as Chile and the Asia-Pacific.
The analysts indicate that the automotive distribution market is changing significantly. This includes the growing influence of Chinese OEMs and shifts in market conditions, which are affecting Inchcape's business.
The loss of key Chinese brands like Geely and JAC Autos in Chile, coupled with Stellantis (NYSE:STLA)'s decision to take over direct management of Citroën and DS brands in the same market, highlights risks associated with distribution agreements. Chile is Inchcape's largest market, accounting for over 20% of its new vehicle sales.
J.P. Morgan also flagged challenges in Asia-Pacific, where market share losses in Australia, Singapore, and Hong Kong indicate increased competition. Electric vehicle manufacturers like Tesla (NASDAQ:TSLA) and BYD (SZ:002594) are gaining market share, disrupting established players and creating a more fragmented market.
The analysts note Inchcape's acquisition of Derco, which has diversified its operations. However, analysts believe near-term challenges outweigh these long-term benefits, leading to a price target reduction from 1,050 pence to 800 pence.
Inchcape's management will address these challenges during its FY results presentation on March 4.
J.P. Morgan cautioned that their 2025 profit assumptions are roughly 10% below market consensus.
This reflects the view that while Inchcape remains a strong player in the automotive distribution space, it is entering a phase of heightened uncertainty that could see its profit pools face further pressure.