Mercedes' latest move to cut 2024 guidance has caused a slump in the shares of a European automaker.

• On Friday, Mercedes' stock price dropped over 8% after the company announced it was revising its 2024 sales forecast.
• Weaker demand from China was the primary reason for the downgrade, according to the German carmaker.
• The auto sector was negatively impacted by the announcement, causing Volvo and Stellantis shares to decline.

The stock price of car manufacturers decreased by more than 8% on Friday, following the trend of reduced forecasts in the industry due to slow sales in China and ongoing trade tensions.

The company announced on Thursday that it now anticipates its group EBIT to fall "significantly below" the previous year and that its adjusted return on sales would be between 7.5% and 8.5%, a decrease from its earlier projection of 10% to 11%.

The stock price has decreased by 7% as of 11:20 a.m. London time, resulting in a slight reduction of its losses.

The auto sector experienced a decline of 3.2%, with falling 4% and 2.7%, respectively.

The deterioration of the macroeconomic environment, caused by weaker Chinese consumption and a prolonged downturn in the country's real estate sector, led Mercedes to revise its forecast.

The sales volume in China, including the Top-End segment, was impacted by this development. Despite the sales mix remaining unchanged in the second half of 2024 compared to the first half, it is now expected to be weaker than originally anticipated.

Another German car manufacturer experienced significant losses last week after adjusting its 2024 profit forecast due to declining sales in China and a problem with a braking system provided by Continental.

Volvo Cars earlier this month revised its margin and revenue targets, following its announcement that it would no longer aim for 100% all-electric vehicle sales by 2030.

UBS analysts stated that Mercedes' outlook revision was not unexpected due to the pressures from China. However, the size of the warning compared to other firms may cause investors to be cautious and lead to further downgrades.

The market will be left puzzled about the underlying profitability and capital allocation of Mercedes-Benz Group (MBG) after its profit warning, which is larger than BMW's, and is not related to a big recall, according to a Thursday note.

The European auto industry is facing growing challenges due to escalating trade conflicts between the EU, the U.S., and China.

The auto industry is a significant contributor to Germany's economy, and the country has strongly opposed EU tariffs on Chinese EVs, fearing that they could harm its business in a major market.

Olaf Scholz, the Chancellery's leader and a Social Democrat, is highly critical of the tariffs and has made this clear to everyone in Brussels, according to Carsten Nickel, managing director at Teneo, who spoke on CNBC's "Squawk Box Europe" on Friday.

The European Commission announced on Thursday that the EU and China have agreed to discuss additional measures and may reconsider a minimum-price deal that was previously rejected by Brussels.

Nickels stated that China's "carrot and stick" approach to negotiations seemed to be effective to some extent, and the EU may now be open to implementing measures such as quotas, minimum prices, and maximum quotas.