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Europe Automobiles & Auto Parts Output Index signalled a
marked pick up in production during September
European autos selling prices tumble again amid efforts to
further boost sales
Backlogs of work rise substantially, but employment contracts
further
As the COVID-19 pandemic progresses, pent-up demand for goods
and services is beginning to be released, providing a boost for
some private sector firms. That said, the automotive industry has
been badly hit by lockdowns and lacklustre demand conditions
throughout the majority of 2020. Although dealerships have
reopened, sales are still well down on those seen last year for
many countries. Despite China seeing a pick-up in monthly and
annual sales, European manufacturers are struggling to retain
growth momentum.
The latest IHS Markit European Sector PMI data signalled a
substantial improvement in production, as new orders were further
boosted and moved towards a recovery from the record decline seen
in April. The introduction of scrappage and incentive schemes
across Europe have also helped to support sales of passenger cars,
especially electric vehicles. That said, the sustainability of the
uptick in demand is very much under question as such schemes come
to an end, and virus cases rise further.
Demand dampened by lockdown measures and
uncertainty
Although new orders received by global automobile producers rose
in September at the sharpest pace since December 2009 as factories
reopened, according the latest IHS Markit Global Sector PMI,
concerns were raised by car producers regarding the longevity of
stronger demand conditions. Although the recovery in Asian car
manufacturing has stabilised in recent months, the European market
continues to struggle, with widespread job losses announced on a
frequent basis.
The autos sector in Europe nevertheless continued to recover in
September from the record contractions seen earlier in the year and
during the depths of the pandemic, with new business increasing at
the second-fastest pace since data collection began in January 1998
as factories reopened their doors and pressure on capacity
re-emerged.
Supply chains evolving due to the pandemic
fallout
Before the outbreak of COVID-19, which disrupted supply chains
substantially, the larger vehicle producers were starting to make
more substantial moves towards the development and use of electric
powered vehicles. The pandemic has seemingly accelerated their
plans amid a drop in demand for new passenger cars and a more
immediate need, due to regulations and government policy, to entice
customers to buy electric vehicles.
Not only have firms invested heavily in new technology and
capabilities to produce electric vehicles, some have even bought
into the supply chain. Many are agreeing contracts with battery
cell manufacturers to ensure they can fulfil production
requirements once the models are operational. Some have also gone
one step further. For example, BMW's agreement with Northvolt (a
battery manufacturer in Sweden) includes a greater involvement from
BMW regarding the sourcing of raw materials to secure the supply
chain. As firms seek to expand their electric vehicle portfolio,
demand for raw materials such as cobalt and lithium has also
risen.
While the most established producers of lithium-ion batteries
remain in Asia. combustion engines for large European automobile
manufacturers are still most commonly sourced via European supply
chains. The switch away from traditional engine types could
therefore have a marked impact on parts producers in Eastern Europe
and the UK. An example was seen during the summer when Ford
announced the closure of its Bridgend plant in Wales, which was a
key engine assembly facility. Furthermore, June responses in the
IHS Markit Czech Republic Business Outlook report stated that
manufacturing firms identified the move towards vehicle
electrification as a threat to growth in the domestic sector over
the coming year.
Differing recoveries stem from pandemic's impact and
support schemes
As the world begins to move at different paces in their recovery
from or escalation of the pandemic, timeframes for the return of
economic growth will also vary. This is likely to be reflected in
the automotive sector, with individual countries moving towards
recovery at varying rates. Much of the difference will stem from
the impact the pandemic has had on the economy in question, but
also the level of support provided to the sector. France and
Germany have already announced vast support policies for the
automotive sector, with both heralding the return of scrappage
schemes which proved critical in the recovery following the global
financial crisis. However, these largely relate to the purchase of
electric or hybrid vehicles only, and as the pandemic continues
into the winter months, job losses in the sector are expected to
rise.
Europe also faces challenges across the industry with regards to
its commitments to climate change. Economic support packages in
individual countries have had to strike a balance between
supporting the move towards cleaner fuels in passenger cars, whilst
aiding the sector during the downturn. Nowhere is this issue
starker than in Germany. The automotive sector contributes greatly
to the economy as a whole, accounting for around 5% of GDP, but
output is still overwhelmingly focused on traditional combustion
engines. Therefore, the current economic stimulus package, which is
dominated by a push for 'green' vehicles, has been met by
consternation by key industry bodies in the country.
Nevertheless, the divergence in recovery between the European
and Asian automobile markets has been stark. Where European car
sales continue to fall, Asian passenger vehicle sales are rising,
with European premium car brands (especially German producers)
remaining ever popular. Therefore, lost revenue in domestic markets
could be counteracted by higher sales of traditional combustion
engine types in Asian markets.
Forthcoming economic data releases:
October 23rd: IHS Markit Eurozone Composite, Manufacturing and
Services Flash PMI (October data)
November 5th: IHS Markit European Sector PMI (October
data)
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
