By Danilo Masoni

MILAN (Reuters) - European auto stocks tumbled almost 4% on Monday after a warning from Stellantis, Volkswagen and Aston rekindled concerns over the sector's earnings outlook in a year marred by slowing demand and aggressive Chinese competition.

The rout wiped off nearly $10 billion from the market value of the STOXX Auto & Parts index with Stellantis, listed in Paris and Milan, falling 14% after slashing forecasts and saying it would burn more cash than initially expected.

Stellantis, Europe's No. 5 carmaker by market value and owner of the Chrysler, Jeep, Fiat, Citroen and Peugeot brands, cited worsening industry trends, higher costs to overhaul its U.S. business and Chinese competition on electric vehicles.

Citi expected sector weakness to persist over the coming weeks, and said a recovery in Stellantis looked unlikely until 2025, when the European-American carmaker resets its inventory, leading to more favourable comparisons.

"We think current absolute and relative... weakness continues into October – before the annual Nov-Jan cyclical rally, likely supported by global rate cuts accelerating," Citi analyst Harald Hendrikse said in a note.

Analysts forecast a near 14% earnings drop in 2024, marking a reversal from the years following the pandemic, when supply chain disruptions allowed carmakers to raise prices.

Separately on Friday, Germany's Volkswagen, which is clashing with trade unions over unprecedented plans to shut factories on its home turf, cut its annual outlook for the second time in less than three months.

Also, Aston Martin on Monday warned of lower annual core profit and cut its forecast for production volumes on supply chain disruptions and weakness in China.

By 0928 GMT, Volkswagen shares were down 2.6% in Frankfurt, while Aston Martin in London sank 20%. In Paris, Renault was down around 6%, while the broader STOXX 600 eased by just 0.6%.

China stocks surged on Monday as investors welcomed the latest raft of economic stimulus measures from Beijing, but those steps failed to bolster sentiment towards European auto shares.

Earlier this month, Mercedes-Benz and BMW both downgraded their forecasts as a result of weakening demand in China, the world's biggest car market.

Concerns over falling earnings have increased pressure on valuations, with the sector now trading at a near-record discount of 60% to the market based on a price-to-earning metric, according to LSEG Datastream estimates.

Despite rock-bottom valuations, autos are the most underweighted sector among regional fund managers overseeing $284 billion, a BofA survey this month showed.

(Reporting by Danilo Masoni; Editing by Dhara Ranasinghe)