OUTLOOK ’23: Automotive sector hits the brakes for growth prospects

LONDON (ICIS) – Conditions in the automotive industry have been tough in recent years and are not expected to ease any time soon in the short term due to geopolitical volatility.

Growth expectations for 2022 were not met and Russia’s invasion of Ukraine at the end of February hampered the post-pandemic macroeconomic recovery. This trend is likely to continue in the industry in 2023.

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A rapid easing of the conflict in Ukraine is unlikely, and restrictions on energy supplies and accompanying price increases will continue to affect both producers and consumers in the automotive sector.

The pressure is spreading downstream as buyers postpone large purchases such as new cars to cope with the cost of living crisis and rising inflation.

Rising fuel costs can discourage drivers from taking many trips. This means less need to repair or replace your vehicle.

Auto parts derived from the chemical sector have also registered higher prices over the past year, and these commodities did not suddenly drop due to persistent inflationary pressures.

These factors, combined with the social changes brought about by lockdowns to contain COVID-19 infections, could lead to a decline in active road users, resulting in structural shifts in demand.

Environmental concerns remain a crucial factor for the market, and strong trade ties with Russia will also affect the production of electric vehicles (EVs). That’s because Russia is the largest producer of the palladium needed to produce her computer chips.

Breakdown by region

US and European car sales increased year-on-year, but this doesn’t tell the whole story as the market hasn’t recovered from the pandemic and had a low base year.

According to ICIS senior economist Kevin Swift, the US is in a unique position. Economic headwinds are resilient and fundamentals have proven unfavorable, but the auto sector could benefit from the backlog built up from the pandemic.

“There’s still potential, until people start paying a premium just to buy a vehicle that may not have been the model or color with the features they wanted for a year and a half to about two years,” Swift said. there is a strong demand,” he said.

“It will provide some support and moderate the decline in vehicle sales in the second half. Despite the mild recession, light vehicle sales are expected next year compared to this year.”

The proximity to the energy crisis and the ensuing economic turmoil has a major impact on European producers, whose production of commercial vehicles faces particular challenges.

New legislation in the form of the Alternative Fuel Infrastructure Regulation (AFIR) is ambitious in tackling emissions, but the European Automobile Manufacturers Association (ACEA) is seeking support to meet the new regulations.

Martin Lundstedt, CEO of the Volvo Group and Chairman of ACEA Commercial, said: vehicle board.

China, the biggest driver of auto demand, will be heavily dependent on China’s growth, which will be challenged by the government’s COVID-19 policies and how regulators deal with rising infection rates. ICIS demand analyst Jincy Varghese said.

Analysts at Oxford Economics expect a modest recovery in consumer spending in early 2023, but they stress that this near-term outlook has risks in both directions.

“Rising numbers of new coronavirus cases could hamper growth due to reimposed restrictions. ,” said Oxford Economics.

“The outlook for the Chinese auto industry remains puzzling as it relies heavily on consumer mobility. there is But it was interrupted due to a lack of spare parts, ”he added Varghese.

This could limit activity in the Indian market as the majority of spare auto parts are imported from China.

The bright spot for the industry in the face of evaporating demand is that this will take some pressure off strained supply chains, allowing producers to keep up with backlogs.

Balance is not guaranteed in the automotive sector, but when it comes to semiconductor components, competition from electrical and electronic manufacturers is still present, and continued high prices could slow down distribution.

Ultimately, producers will have to keep up with the impending and destabilizing macroeconomic or geopolitical shifts in 2023.

Automakers could see steady growth next year if China’s coronavirus-free policy is completely lifted and Europe can ease the impact of the war in Ukraine on energy and raw material supplies.

Cover photo: Volkswagen facility in Lower Saxony, Germany
Source: Snapshot/Future Image/N Heusel/Shutterstock

focus article Morgan Condon

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