Face-to-face competition will return to Europe’s auto market this year as sales turn positive, while electric sales pause for breath.
The emergence of a new threat from China’s mainly electric vehicles will add an additional level of difficulty for European manufacturers. If this threat poses a serious problem for European industry, expect protests from European Union (EU) politicians. The US Inflation Reduction Act threatens lucrative exports and could trigger a trade war if the US does not restore what Europeans see as fair access.
In 2022, some car manufacturers, mainly German luxury ones, managed to take advantage of the difficulties posed by the lack of semiconductors. As shortages forced them to reduce volume, by restricting sales primarily to their more exotic and higher-priced machines, lower sales often meant higher profits.
By 2023, production and sales will increase and tough market conditions will recover. Profit margins will be under pressure. Unfortunately for investors and the industry, this return to normal will still not resemble the market strength that was displayed before the coronavirus pandemic.
For battery electric vehicles (BEVs), the huge sales acceleration from 2020 will peter out, mainly as large German subsidies are cut. Manufacturers made sure to produce maximum BEVs last year while the subsidies lasted, so the market will be saturated for a few months. EU rules requiring ever-smaller carbon dioxide (CO2) emissions won’t tighten again for a couple of years, so the pressure to sell BEVs will ease for a while.
LMC Automotive expects a healthy 7.8% increase in Western European sedan and SUV sales to 10.95 million after falling 4.1% in 2022. Don’t forget that the pre-coronavirus figure was a whopping 14.29 million in 2019. Much of the industry’s output is still geared towards meeting a Western European market more than 2 million more than current expectations. LMC added some cautionary factors to its forecast.
“Vehicle supply constraints continue to persist in 2023 for Western European countries, as vehicle demand still exceeds supply. However, our forecast assumes that production bottlenecks will will decrease during 2023, leading to year-on-year growth in registrations for the year,” LMS said in a report.
“That said, the market is expected to remain somewhat below 2019 levels. From a macroeconomic perspective, Western European countries are experiencing recessionary conditions, with higher prices and interest rates than compressing real household incomes. While a clear downside risk to the outlook comes in the form of a steeper macroeconomic downturn, order backlogs are helping that,” LMC said.
Western Europe includes all the major markets of Germany, France, Great Britain, Italy and Spain.
Act of 2022, Reducing US Inflation
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Schmidt Automotive Research said that by 2023 Western European BEV sales will increase to 1.6 million from 1.5 million in 2022. Market share will remain at 15.1% of a larger global market . BEV sales growth will slow between 2022 and 2024 to less than one percentage point.
“The BEV mix is not expected to see major advances until 2025, when the next (EU-mandated) CO2 reduction comes into force. We expect a 4.9% increase over 2022 levels to 20% by 2025,” Schmidt Automotive said in a report.
Schmidt Automotive expects BEV sales in Western Europe to reach 65% of a global market of 14.2 million by 2030.
Investment bank UBS does not subscribe to this feel-good scenario for global sales.
“We expect to see positive year-on-year growth rates (in European car sales) in the coming months, as the Q2 2022 base is heavily impacted by the war between Russia and Ukraine, which halted some production lines during several weeks,” UBS said. in a report.
“However, we do not expect 2023 sales to exceed last year as distributors are already asking (manufacturers) for price cuts on top of weak order intake. We stick to our view that (Manufacturers) will have to choose between losing volumes at current prices or lower prices to maintain volumes, either negative for earnings,” UBS said.
French car consultants Inovev expect Europe-wide sales to rise by no more than 4% in 2023, without much change in the overall health of the market, although it lags behind the pandemic. 2024 should be stronger.
“Basically, the dynamics of the market should not change drastically in 2023 compared to 2022, given the economic and political environment that should not evolve strongly this year. So we should be able to reach a little over 13 million in our baseline scenario. This is still far from the 17.3 million reached in 2019. However, more significant market growth could occur from 2024 with an expected increase of 5-6%,” Inovev said.
Meanwhile, a formal EU reaction to the US IRA is expected.
Luca de Meo, CEO of Renault and president of the European Association of Automobile Manufacturers, said protectionism leads to inflation and inefficiencies, without making an explicit accusation.
“But I think the European community must react (to the IRA). Countermeasures need to be found to protect the industry,” he said, according to Automotive News Europe.
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