As European short-term car sales forecasts are slashed again because of China and Russia, investors worry that by the time supply chain horrors have subsided, underlying demand growth might peter out.

There has been positive news on the chip shortage.

Global sales forecasts are weak too but are expected to resume a belated strong upturn in a couple of years.

Investment bank Morgan Stanley
MS
said in a report thanks to China’s reopening after the covid lockdown more supply has been liberated, while a fall in demand for consumer electronics has freed up access to semiconductors for the auto industry. Another investment bank, UBS, said semiconductor supply will increase gradually and materially in the next year or so. UBS said demand for premium sedans and SUVs will outperform mass markets thanks to the resilience of consumers with high incomes, while the battery electric vehicle (BEV) sector continues to do well.

LMC Automotive, in its monthly sales update for Western Europe, has slashed its forecast again. It now says sales will slide 7.4% in 2022 to 9.81 million, compared with its forecast a month ago of a 6% fall. At the start of the year, LMC Automotive reckoned sales would bound ahead by 8.6%, but Russia’s invasion of Ukraine put paid to that.

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In 2019’s pre-coronavirus world, Western European sales hit 14.29 million.

“We forecast the 2022 market down against both 2020 and 2021, and at around two‐thirds of the levels seen in 2019, due to our baseline assumption that supply chain issues will constrain results through this year and into 2023,” LMC said in a report.

“Risks still lie tilted to the downside, with the most immediate threat to the forecast posed by a longer‐than‐expected conflict in Ukraine or worsened supply chain disruption because of China’s COVID‐19 policy. The demand-side situation is becoming increasingly gloomy, highlighted by the fact that consumer confidence in Europe is currently lower than anything seen at the start of the pandemic,” the report said.

Western Europe includes all the big markets of Germany, Britain, France, Spain and Italy.

Morgan Stanley, in its report, said while the circumstances remain fluid, the long-lasting global auto chip shortage may be edging closer to resolution.

“We see improved supply chain availability as an under-appreciated trigger for the transfer of value from those who have enjoyed pricing power on the down-stream to those who have had to face rising input costs and lower production upstream,” Morgan Stanley said.

An earlier report from UBS had said its model of the rising price of commodities going into autos had reversed since the peak in early March, led by nickel and lithium prices.

Meanwhile, Automotive News Europe reported Mercedes and BMW were receiving enough high-tech components to allow production capacity to return to peaks. VW was seeing steady supplies, although it expressed some uncertainty about coming months.

Last month Germany’s Center for Automotive Research (CAR
AR
) said global sales in 2022 will fall to 67.6 million from last year’s 71.3 million. Sales were thought to have bottomed out in 2020 at 68.6 million after diving from 79.9 million in 2019 because of the global economic lockdown inspired by fears over the coronavirus pandemic.

Global sales peaked in 2017 at 84.4 million.

CAR predicts a slow but steady improvement with 70.8 million sales in 2023, 73.4 million in 2024 and 75.4 million in 2025.

“Globally, this is the worst car market for 10 years,” CAR said.

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