Before the coronavirus pandemic concerns disrupted worldwide production and upset supply and demand, auto manufacturers – cautiously navigating a landscape of tenuous global demand, anticipated stable growth to follow from relative weakness in 2019.
Albeit the optimism on improving business conditions, an unprecedented pandemic hit. Initially, the impact on consumption was severe.
Robust balance sheets and a stronger-than-expected recovery across Europe, but more remarkably so in China, allowed most automakers to navigate a difficult 2020 safely.
Regional breakdown
China’s automotive industry was hard hit by the pandemic in early 2020. Vehicle sales dropped by as much as 42.4 per cent in Q1 compared to the previous year, and worse in 2019. As the country managed to get the coronavirus pandemic largely under control, the industry, along with the rest of the economy, bounced back.
Following a sales plunge, China’s vehicle sales rose for nine straight months, leading a recovery in the global automotive industry from the coronavirus pandemic. The recovery, albeit stronger-than-expected, was insufficient to register a full year-on-year growth, with auto sales declining for a third consecutive year.
Considering full 2020, auto sales declined 1.9 per cent to 25.3 million from 2019. Sales of passenger vehicles dropped six per cent in 2020, while that of new energy vehicles (NEVs), which comprise of; plug-in hybrid, battery-powered electric, and hydrogen fuel-cell vehicles, rose 11 per cent from a year earlier to almost 1.4 million units. Meanwhile, sales of commercial vehicles, which constitute approximately a quarter of the overall market, surged 19 per cent, this driven by the government’s investment in infrastructure and as consumers upgraded to comply with more stringent emission rules.
For the year 2021, China Association of Automobile Manufacturers (CAAM) expects automotive sales to rise by around four per cent to 26.3 million – a figure which shall surpass 2019 data and ultimately bode well for car manufacturers.
European vehicle manufacturers have undoubtedly suffered a more severe impact than most industries in 2020.
Albeit staging a recovery in Q2 and Q4, the EU passenger automotive market contracted by 23.7 per cent to 9.9 million units in 2020 – the most significant drop on record, consequent to the Covid-19 pandemic. All 27 EU nations recorded double-digit declines throughout 2020. Among the bloc’s largest automotive markets, Spain posted the sharpest drop of -32.3 per cent, closely followed by Italy and France at -27.9 and -25.5 per cent, respectively. Although substantial, the decline in auto sales was particularly less pronounced in Germany - Europe’s automotive hub, at -19.1 per cent.
The push towards NEV
New energy vehicles have as yet, made up a relatively small share of the global automotive market. However, this shall undoubtedly change going forward.
The push towards greener energy and thus reduction in Co2 emissions shall drive auto manufacturers to continue investing heavily in such technology. Although this push presents its own challenges, both financial, as costs increase particularly through R&D, to an industry that's relatively unprepared for more onerous emission targets (currently at 95g of Co2/km), and in its supply chain due to a current shortage of semiconductors, an opportunity exists. Government incentives such as bonuses and tax rebates shall undoubtedly continue to drive demand in 2021. To-date, stimuli for new energy vehicles are available in 26 out of the 27 EU countries, while China and the U.S. offer tax exemptions. Incentives which shall certainly not subside in the very near future as the fight towards a greener environment intensifies.
Following a pandemic-induced downturn in 2020, the outlook for the automotive industry seems optimistic. Improved macroeconomic conditions, particularly following the vaccine rollout allowing a return to normality and thus COVID-19 induced lockdowns to abate, shall bolster consumer activity and therefore auto demand.
Disclaimer: This article was written by Christopher Cutajar, credit analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.
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