Fitch Group

Mar 15, 2023

March 15, 2023 Getty - Advertisement - Europe’s automakers pleased investors with strong profit reports for 2022 but will raise eyebrows as some experts see worsening earnings prospects this year. The consensus view is that sales in Western Europe will rise to around 11 million this year from last year, but this is still severely below the pre-Covid market tally of 14.29 million in 2019. microscope. - Advertisement - Fitch Ratings points to several large manufacturers such as Stellantis, Mercedes and BMW, flush with cash, launching large share buy-back programmes, while Renault restored dividend after a gap of 3 years. Fitch expects overall profits to remain strong on subdued demand and falling raw material prices. “We expect profitability to remain solid, supported by lower available volumes due to transition to battery electric vehicles, suppressed demand and supply chain issues increasing pricing power for manufacturers. While we expect pricing conditions to become more challenging in 2023, especially in Europe, we believe that lower raw material prices and improvements in inventory management will still provide a cushion against a high inflation environment and weak consumer sentiment. should reduce, Fitch Group said in a statement. - Advertisement - That’s news for investment bank UBS, which sees a 40% drop in earnings per share this year as a big market thanks to pricing weakness. Tesla UBS said an electric vehicle price war has begun, spreading to so-called “legacy” auto makers. “(Manufacturers) will face difficulties in maintaining price discipline and high mix, while with EBIT (earnings before interest and tax) expected to be only slightly above flat year-on-year, reflecting lower financial support income and suffering marginally from higher costs. We are cautious on all MAS (manufacturers) for 2023, while thanking more cycle-resistant luxury names and Tesla for cost and technology leadership, UBS said in a report. Germany’s IFO institute is also picking up negative vibes in its March report. “(Automotive) manufacturers in particular assess their current situation significantly worse than last month. This is probably due to the fact that buyers are very cautious at the moment,” said IFO director Professor Oliver Falk. LMC Automotive’s regular monthly sales report slightly raised its Western Europe forecast for 2023 to 7.9% to 10.96 million sedans and SUVs, up from last month’s forecast of 7.8%. But it recognizes that the market has some worrying characteristics. “We still see supply constraints dominating this year. Underlying demand also faces challenges, with many Western European countries currently facing recession and subsequent weak growth. In recent months however, consumer sentiment has become a bit less pessimistic, and with orders backlogged, we still see a rapid recovery in production this year supported by demand. However, it is clear that the rising cost of living and the high levels of inflation observed across the region pose a downside risk to our forecasts,” the report said. Meanwhile, turning to the profit side, LMC analyst Peter Kelly points to some ominous developments. in a report titled “A Change in Automotive Fortunes Is Coming” Kelly says the boom in new vehicle prices in the US and Europe and overall manufacturer profitability is eroding. “At some point, possibly later this year, though unlikely before, rising supply should meet falling demand,” Kelly said. Kelly is skeptical of manufacturers who say they’ll never return to bad old ways of sacrificing profits for volume. “We are not convinced by this argument and expect market competition to become a major factor once the supply-demand imbalance is eliminated. Significant market share loss to an aggressive competitor seeking to deliver more quickly and/or at better prices” It will take a brave one (manufacturer) to stand up for and preside over. It will only take one or two big ones (manufacturer) to change any market – and the notion that the industry can discipline itself without collusion is seriously flawed. will attract regulatory attention, may be largely dismissed,” Kelly said. Credit: www.forbes.com /