Healthy sales of sedans and SUVs are expected in Europe this year, but a storm of negatives appears to have undermined gains, including concerns that a shrinking supply of credit could inhibit buyers and weaken the economy, while the Tesla’s electric car price war also forces manufacturers. usually to trim the margins.
“Tesla has unleashed an electric vehicle price war that will have industry-wide consequences. (The major manufacturers) will have to follow, but with their higher cost structures, this will derail the margin parity narrative of electric vehicles. There should also be a knock-on effect on ICE (internal combustion engine) prices,” investment bank UBS said in a report.
UBS expects the financial subsidiaries of US and German carmakers to come under pressure as interest rates rise.
“We expect (manufacturers’) earnings to decline sequentially from here as price competition intensifies due to overproduction. Estate earnings are also likely to remain under pressure. We continue to prefer luxury (stocks) to on mass market manufacturers,” UBS said.
Rising interest rates will affect all manufacturers, according to investment researcher Bernstein.
“Higher financing costs for consumers will create multiple headwinds. As cars become more expensive to finance, the marginal consumer will choose to keep their current car rather than replace it at the end of the year. This reduces demand for new cars, negatively affecting volumes in the core industrial auto business, but keeping used car prices high,” Bernstein said in a report.
“New car buyers will also err toward cheaper or less option-rich cars, which is a net price/mix headwind for the industry,” Bernstein said.
Meanwhile, sales forecasts look superficially healthy.
According to Fitch Solutions, Europe will be the best-performing region in the world in 2023, with 6.2% growth in sales of personal cars, especially Chinese electrics and commercial vehicles.
“Several key factors are informing our outlook, including a decline in semiconductor shortages, increased sales for fleet operators and strong demand for electric vehicles. We expect electric vehicle sales to account for nearly 20 % of all personal vehicle sales in the region by 2023 as continued government support and increased adoption of more affordable Chinese electric vehicles drive EV adoption.We also forecast that vehicle sales electric passenger cars in the region to expand by 21.3% in 2023, following an expansion of 15.3% in 2022, to reach an annual sales volume of just over 3 million,” Fitch Solutions said in a report
LMC Automotive has raised its 2023 sales forecast for Western Europe to an 8.2% gain to 10.97 million, up slightly from a 7.9% prediction a month ago. Western Europe includes all major markets such as Germany, France, Great Britain, Italy and Spain. LMC notes that while growth rates appear strong, sales are rising from a weak base. LMC also agrees that some negative economic factors must be taken into account.
(Sales are still well below the pre-Covid 14.29 million in 2019.)
“While these countries are still operating below pre-pandemic standards, further easing of supply restrictions is expected throughout this year, supporting (sales). Downside risks remain, with countries experiencing recessionary conditions that will affect underlying demand. This has recently been exacerbated by concerns in financial markets. However, order backlogs will continue to provide a cushion for the weakening demand situation,” he say LMC in a report.
How will the various car manufacturers handle this hostile environment?
According to UBS, BMW looks best positioned to ride out the storm, while Volkswagen is the least favored.
Investment researcher Jefferies says Tesla will continue to generate attention.
“Tesla will remain central to the industry’s investment theses, even if its stock has become more of a relative investment case, its product and pricing policy creating price spillover to across the sector Elsewhere, we continue to see transformation as a key driver of investment ideas with Renault’s EV IPO, Ford’s EV outreach division and VW’s strategic update will likely capture interest in the first half,” Jefferies said in the report.
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