LONDON (Reuters) - European carmaker Stellantis ( STLA ) joined on Monday bigger rival Volkswagen and others in warning about the worsening outlook for auto demand and rising costs, wiping billions of euros off the sector's market value.

The automakers are struggling with weak demand in China and the United States and a potential trade war between Beijing and the EU as the bloc prepares to finalise import tariffs on Chinese electric vehicles over alleged subsidies.

British luxury carmaker Aston Martin also issued a full-year profit warning on Monday, partly blaming falling demand in China, as Mercedes-Benz and BMW also did earlier this month.

Aston Martin's shares plunged as much as 20% to their lowest in nearly two years.

Shares in Stellantis ( STLA ) were down nearly 11%, hitting their lowest since December 2022 as investors digested the scale of the world No. 4 automaker's problems. Stellantis ( STLA ) shares have lost 38% in value this year, making it Europe's worst performing automaker.

The latest warnings follow Volkswagen's announcement late on Friday that it was cutting its 2024 profit outlook for the second time in under three months. Its shares were down a little over 2.8% in mid-morning trading on Monday.

The German car giants have been reliant on China for around a third of their sales and have been hit by a weaker economy there and fiercer competition from domestic Chinese automakers and a vicious EV price war.

MISJUDGING US CASH COW

Falling European demand has not helped either. New car sales in the European Union fell 18.3% in August to their lowest in three years with double-digit losses in major markets Germany, France and Italy and sliding electric vehicle sales.

Much of Stellantis' ( STLA ) problems, however, stem from North America.

The expensive Jeeps and pickup trucks that Stellantis ( STLA ) sells in the lucrative U.S. market have generated virtually all of its profits since the automaker was formed out of the merger of FCA and PSA in 2021 and have made its profit margins the envy of its mainstream peers.

But high inventories and weak sales as Stellantis ( STLA ) has somehow misjudged its cash cow market has forced it to both cut production while also offering deep discounts on the vehicles depreciating on dealer lots across America.

As a consequence Stellantis ( STLA ) has slashed its adjusted profit margin for the year to between 5.5% to 7%, down from double digit and warn of negative cash flow of between 5 billion euros ($5.6 billion) and 10 billion euros.

Forward 12-month price-earnings ratios, a measure of a company's market value, for the three biggest European carmakers - VW, Stellantis ( STLA ) and Renault, are around 3, much lower than U.S. rivals, GM and Ford, and Toyota - the world's largest carmaker.

Where traditional European automakers' problems intersect is rising competition from Chinese rivals who can develop better, cheaper EVs much faster than Volkswagen, Stellantis ( STLA ) or Renault can.

They are also struggling to sell the EVs they are making, while investing large sums to develop new, more affordable models.

Changing over production lines to new models takes revenue-generating capacity offline, exacerbating cash flow issues for legacy automakers whose plants already have capacity utilization problems that they have failed to address.

Falling market share in China and lower car demand in Europe have led Volkswagen to warn of possible plant closures in Germany, putting the company on a collision course with the powerful IG Metall union.

Talks over pay between Volkswagen and the union started last week.

($1 = 0.8948 euros)

(Reporting By Nick Carey; Editing by Emelia Sithole-Matarise)