In Focus Risk
European automotive: a slow-motion car crash
The combined effects of electrification, legal changes, high fixed costs, and pension-fund deficits spell an uncertain future for the car-manufacturing sector
Victor Hill Macro strategist, Master Investor
Demand for new cars grew in Europe by just 0.5% last year despite benign economic conditions. The recent downturn in manufacturing
output in Europe has been largely driven by a dramatic slowdown in car production, which is only partially caused by the fall in demand from China. Chinese car sales fell by about 6% in 2018 and Goldman Sachs is predicting a bigger decline in 2019.
Complacency The Chinese car market is critical for all of Europe’s volume automotive manufacturers which have ruled the roost for so long, complacent behind huge barriers to entry to new players. These include Volkswagen, Daimler AG, BMW, Nissan, General
Some of its production is relocating to
The Chinese car market is critical for all of Europe’s volume automotive manufacturers which have ruled the roost for so long, complacent behind huge barriers to entry to new players
Motors, Ford, Peugeot SA, and Jaguar Land Rover (JLR, owned by Tata Motors). JLR announced 4,800 job losses in early
January, mostly in the UK where it employs about 40,000 people. This followed the announcement of a £354m half-year loss.
Slovakia with the help of a €130m subsidy from Brussels. Ford, which employs 13,000 at its
Bridgend and Dagenham engine plants in the UK, also announced a shakeup of its European business. Ford reported a $1bn loss in Europe last year. Sales at Nissan’s UK business fell by
£93m last year to £6.3bn, and Nissan’s car production fell by 6.2% to 487,000 units.
Shadow European car makers are facing the challenge of tighter regulations limiting the use of diesel engines and the move away from the internal-combustion engine towards electric-powered vehicles. The shadow over the future of diesel was
lengthened by the emissions scandals affecting both VW and Mercedes. While they are investing heavily in electrification, it is taking longer than expected for them to roll out a full range of electric vehicles. In the meantime, Tesla turned in excellent
numbers for the fourth quarter of 2018 thanks to strong sales of its Model 3. The Model 3 does seem to have some reliability issues, however. Few doubt that electric vehicles are the
industry’s future, though it is still unclear whether lithium battery or hydrogen-fuel- cell technology will finally win out. According to Bloomberg NEF, the number
of electric-vehicle models on the market will rise from 155 in 2017 to an estimated 289 in 2022, after which date it predicts that sales of internal-combustion-engine-powered
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www.CCRMagazine.com March 2019
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