The European auto industry is currently experiencing a recovery from the impact of the pandemic. Third-quarter earnings are expected to show growth compared to the same period last year, which bodes well for the big five EU carmakers as they work towards meeting their 2023 targets. However, despite the positive outlook, there are some challenges on the horizon that need to be considered. Here’s what you need to know ahead of the earnings season.
Positive Growth Expected in Key Markets
Based on new car registrations, sales volumes in key markets such as the U.S., China, Germany, France, Spain, Italy, and the U.K. are projected to grow between 6% and 7% in the third quarter of 2022, according to analysts at Bernstein. This growth rate provides “ample breathing room” for most carmakers to meet their volume guidance for FY23. Additionally, operating leverage and declining costs are likely to contribute to steady or increased margins in the industry. Deutsche Bank Research estimates third-quarter earnings growth in the car and car-parts sector to be at 18%.
Demand Challenges Ahead
Despite the positive growth projections, there are concerns about the demand for battery-electric cars. Both Stellantis and Volkswagen have decreased production due to lower demand. Although the industry is expected to have a positive trade environment into early 2024, uncertainties regarding costs and operating leverage make it difficult to predict the rest of the year accurately.
Fourth Quarter Volume Surge
Investors are looking beyond the third quarter to the fourth quarter, where carmakers will face the challenge of competing with a 30% surge in volume in key markets compared to the prior-year period. Looking ahead even further, Deutsche Bank expects a 2% contraction in earnings for the car and car-parts industry next year.
Upcoming Earnings Reports
Here are the scheduled dates for the upcoming earnings reports of major carmakers:
- Renault: Oct. 19
- Porsche AG: Oct. 25
- Mercedes-Benz: Oct. 26
- Volkswagen: Oct. 26
- Stellantis: Oct. 31
- Aston Martin: Nov. 1
- BMW: Nov. 3
In conclusion, while the European auto industry is experiencing a recovery, challenges lie ahead, particularly in terms of demand and future earnings. It will be crucial for carmakers to navigate these challenges successfully to ensure sustained growth in the coming years.