Aston Martin reduces sales forecast, may cut production

LONDON -- Aston Martin lowered its full-year sales forecast and cut up to 40 million pounds ($49.77 million) off its previous investment plans in response to a deepening auto industry slump in Europe.

Aston Martin, which has seen costs rise due to aggressive investment and Brexit provisions, said it now expects annual wholesale volumes to be between 6,300 to 6,500 vehicles, compared with an earlier forecast of 7,100 to 7,300 vehicles.

In the second quarter, demand fell by 22 percent in the UK, the automaker's biggest market, and 28 percent in the rest of Europe. By contrast, Asia-Pacific and the Americas region showed double-digit gains.

Aston Martin also made a provision of 19 million pounds ($24 million) that will be accounted for during the second quarter. Taken together with the reduced sales outlook, that will result in an expected operating return on sales of about 8 percent for this year.

The company said it's working to boost efficiency and reduce costs.

"We are disappointed that short-term wholesales have fallen short of our original expectations," CEO Andy Palmer said. "We are today taking decisive action to manage inventory and the Aston Martin Lagonda brands for the long-term."

A source familiar with the matter said the company would cut vehicle production as a result of lower sales expectations.

Aston Martin said in May that some of its markets faced a "challenging environment," and that it was planning accordingly to avoid problems with deliveries.

"The challenging external environment highlighted in May has worsened, as have macro-economic uncertainties," the company said. "We anticipate that this softness will continue for the remainder of the year and are planning prudently for 2020."

The lower volume forecast was "more concerning" than supply issues detailed earlier this year, Credit Suisse analyst Daniel Schwarz said. "Dealers are ordering fewer cars. It is not yet retail, according to the company, but it's wholesale which might reflect that dealers are more cautious going into the second half."

The cut to the outlook is another blow in Aston Martin's struggle to convince investors that it can make the transformation from niche player to successful listed company, and keep a promise to take on Ferrari.

Since an initial public offering in October at 19 pounds a share, the stock has more than halved. It was down 23 percent on the day at 799.60 pence at 11:08 CET in London.

The company's sterling-denominated bonds due April 2022 also declined, falling as much as 2 pence to 97.4 pence on Wednesday, the biggest drop since they were issued in April 2017, according to data compiled by Bloomberg.

Aston Martin plans to double volumes by 2023, which will depend on the successful launch of the DBX, its first SUV.

The car will be made at a new plant in St Athan in Wales, where first pre-production vehicles are moving down the line.

First orders will be taken from August with a planned output start during the second quarter of next year.

"Aston Martin is a medium-term story and its future is unlikely to be defined by 2019's performance," Goldman Sachs analysts led by George Galliers wrote in a note. "Nevertheless, concerns around operating risk as well as questions on Aston's ability to sustain volumes on vehicles that are more than 12 months old are all areas of concern for investors."

Most automakers and their suppliers are reeling from a significant slowdown in China and Europe that began last year.

Daimler has warned of lower-than-expected profits while parts supplier Continental also slashed its earnings outlook.

PSA Group, while posting improved profit on Wednesday, painted a gloomier picture of demand in Europe and China.

Reuters contributed to this report