- Sales improvement in the sector worldwide
- Period of unprecedented innovation in the sector
- Car manufacturers are among the largest investors in R&D worldwide
- Highly impacted by the COVID-19 crisis
- Semiconductors shortage, a key component in the automotive industry
- Increasingly restrictive anti-pollution standards requiring heavy investments, particularly in anticipation of future European and American announcements
- High uncertainties on the global automotive supply chain notably due to the knock-on effects of the trade war
- Rising prices for car parts and equipment are affecting margins
The global automotive sector is gradually recovering from the health crisis in 2021, driven primarily by Asian and North American economies and more cautiously in Europe. On the other hand, the recovery in supply has been hampered by a global semiconductor shortage since the end of 2020, forcing car manufacturers to stop production lines on occasion. Despite this, the sector's profitability stood at 1.7% in Q1 2021 compared to only 0.75% in the previous six months. Globally, vehicle production increased by 50% year-on-year (YoY) in Q2 2021, leading to an estimated growth of 11.4% for 2021 as a whole. The increase in global car sales is estimated at 9% in end-2021, although this still lags behind 2019 levels and is partly driven by electric vehicles (EV) sales, which account for 37.5% of all vehicle sold in Europe during Q2 2021.
Economic growth will pick up in 2021, after an unprecedented contraction of GDP in 2020. Indeed, according to Coface, global GDP will rebound by 5.6% in 2021. However, while the sector's sales are recovering, the threat of a new wave, and therefore of new restrictions, weighs on the world economy and on the automotive industry alike.
Moreover, the sector is still undergoing a major transformation with the development of electric vehicles and increasingly restrictive regulations. The automotive industry is continuing to reconfigure itself with the rise of e-mobility and the emergence of new players in the electric vehicle and driverless car segments. Traditional carmakers and parts makers are pressured, and rush to forge new partnerships to face these new challenges.
Note for the reader: The “e-mobility” segment of the automotive sector includes fully electric vehicles, electric hybrids, and hydrogen vehicles.
Sector Economic Insights
Regarding the current situation, the automotive sector is rebounding strongly, despite a semiconductor shortage
The recovery of the North American and Chinese economies, thanks to a massive U.S. stimulus package and an accommodative monetary policy in China, which boosted the manufacturing sector, have allowed a rebound in demand for cars. With longer and lingering containment measures, the recovery of the European sector came later.
Just as manufacturers seemed ready to meet this growing demand, a shortage of semiconductors, an essential part in vehicle manufacturing nowadays (but also in many other industries), is making the recovery of the automotive industry more difficult. As the shortage is still ongoing, the induced loss of production will not be recovered in the current year. This imbalance between supply and demand, and the rise in commodity prices, has led to an increase in car prices. However, there is a clear overall recovery in the sector, albeit subject to new health restrictions. Thanks to an exceptional economic growth of 18.3% in Q1 2021, well ahead of other countries, Chinese car production increased by 80% in Q1 2021, accompanied by a sales increase of over 400% compared to Q1 2020. The trend in Q2 2021 is slightly less favourable, mainly due to the shortage of semiconductors, which slows down the production of vehicles needed to meet the high demand.
In Europe, the sector is recovering, but at a slower pace. Although sales increased by 73% YoY in Q1 2021, they remain 22% lower than in 2019. Indeed, the number of registrations fell by 36% in the first four months of 2021 compared to the same period in 2019. It is worth noting that the share of electric vehicles sold in the various European countries has increased considerably in 2021 due to strong incentives.
In North America, vehicle production is up 138% YoY in Q2 2021, driven by a strong demand due to Joe Biden's stimulus package in the U.S., although it is also subject to material shortages.
Moreover, the sector is undergoing a major transformation. Indeed, the institutional environment is pushing manufacturers and equipment suppliers to develop electric engines. The year 2021 marks a tightening of the regulations governing the CO2 emissions of new passenger cars. For example, the European Commission has proposed a ban on the sale of new petrol and diesel cars from 2035, with the aim of achieving completely decarbonised transport by 2050. As a result, the hybrid and electric segments are the most likely to recover quickly as they benefit from public support, particularly in Europe, China and the US.
The recovery of the sector can be observed in all parts of the world, with increasing sales of electric and second-hand vehicles. The recovery has been strong in China, where production in 2021 is estimated to be 0.9% higher than in 2019 and accounts for 30% of global volumes. The fear of taking public transport due to the pandemic may have had an impact on the willingness of households to buy a car. In order to boost the sector activity, public authorities have implemented incentives such as subsidies for the purchase of electric cars until 2022. Europe is also seeing a rebound in production in 2021 and an increase in sales of alternative engine vehicles due to government subsidies and the enforcement of stringent environmental regulations. The general recovery is also visible in the financial results of industry players. For example, Stellantis reported record net revenues in 2021 (+46% compared to H1 2020), despite the shortage of semiconductors.
From a structural point of view, the automotive sector is undergoing major changes at a global level. These are mainly linked to a transition towards the decline of thermal engines in favour of electric ones. Coface expects this reconfiguration of the sector to continue in the medium- and long-term. The rise of e-mobility is mainly linked to new players such as Tesla, a manufacturer of electric vehicles, joining the world leaders. Faced with this trend, the entire automotive sector is investing heavily in Research & Development and is expanding electric vehicle ranges in order to compete with these new players. For instance, the DS, Lancia and Alfa Romeo brands (all owned by Stellantis) will become 100% electric from 2024, 2026 and 2027 onwards, respectively. However, these radical changes could have an impact on the sector's turnover and employment. The maintenance costs of an electric car are estimated at half the value of a thermal engine. The engine does not need maintenance and the batteries have a longer lifespan than the 7-10 years of combustion vehicles. Consequently, the volume of after-sales operations and the number of man-hours should decrease as a result of the change in engines.
The COVID-19 crisis has contributed to accelerate the reconfiguration of the sector, accelerating the digitalisation of sales. Indeed, e-commerce and the digitalisation of the economy in general have developed strongly during the health crisis, which has led to the emergence of new modes of consumption. A reorganisation of distribution channels is notable in the automotive sector. For example, Tesla has adopted its sales strategy by closing its physical sales outlets in order to focus on online sales, with a dual purpose: to adapt to consumer expectations and to reduce costs to maintain financial stability in the context of the economic crisis linked to COVID-19. Other manufacturers and dealers have followed this digital strategy. Companies are now offering a new customer experience by removing some of the barriers to purchase. This includes creating a quick and easy online shopping experience and eliminating hours of waiting at the dealership through home delivery. However, most players in the industry do not have the staff, processes or technology to provide a frictionless experience that does not require a visit to the dealership. This situation could be an incentive for traditional manufacturers to establish partnerships, with the objective of lowering costs. This is, for instance, the case of Ford and Volkswagen, who will jointly produce 8 million commercial vehicles.
Automotive sector players must adapt to increasing regulations against pollution and global warming, which are becoming more restrictive
These measures are forcing manufacturers to make heavy investments to comply with standards. In Europe, the new CO2 standard in force since January 2020 aims to limit the quantity of CO2 for new vehicles sold. Non-compliant carmakers will be fined if their fleet of vehicles for sale emits more than a predefined threshold of CO2. By 2025, the European Union also plans to implement Euro 7, a new standard for emissions of other pollutants, namely nitrogen oxides, carbon monoxide, fine airborne particles and unburnt hydrocarbons, for the approval of cars. Those constraints in the emissions limits have already led manufacturers such as Audi and Volvo to announce that they are halting the development of new combustion engine technologies. Although there is a natural tendency to converge on the adoption of anti-pollution standards in the main automobile markets, the question of the homogeneity of standards between the main markets still has to be monitored, considering the risk of segmentation. In the U.S., President Joe Biden will soon set a new national target for the adoption of electric vehicles, calling for them to account for half of all new car sales by 2030.
Last update : August 2021