The global car industry is witnessing a positive shift in sentiment as new vehicle registrations have been gaining momentum across all major markets since the second half of 2022. With order books staying at healthy levels but new orders going down, carmakers are carefully calibrating production rates to prevent oversupply. The key factor contributing to this resurgence has been the easing of supply-chain constraints, particularly in the semiconductor sector. As the availability of these now ubiquitous components improves, car manufacturers are finding themselves in a better position to increase production and meet the market demand that has been building up since early 2021. This combination of strong demand and improving supply has been positive for the industry’s profitability, which was also been boosted by higher average selling prices and a greater focus on higher margin models. Raw material and transport costs have also significantly eased from their 2022 highs.
For 2023, we expect the global market to reach around 84mn units (+7%). While the gap from 2019 levels remains wide, we do not expect it to be bridged anytime soon:
- On the demand side, because the cost-of-living crisis, higher interest rates and the general increase in new car prices are excluding a fraction of potential customers out of the market.
- On the supply side, because carmakers are not yet engaging in a race for volumes.
The situation among suppliers in the automotive sector presents a more varied picture, particularly for those whose business models are heavily dependent on volumes and who have limited ability to exert pricing power. Suppliers that are heavily invested in internal combustion engine (ICE) technologies are also finding themselves particularly vulnerable as the automotive industry continues to shift towards electric vehicles (EVs).
The main risk factor, in our view, lies in growing competition from Chinese carmakers both in China and international markets. Because Europe is more open to international competition and European firms are the most present in China, we believe European firms are the most at risk of losing market shares in the years to come.