AUTOMOTIVE

In 2018, global passenger car sales and automotive production both posted their first decreases in nine years, and 2019 is expected to remain challenging for the automotive industries.

The first issue is will be to cope with weaker and troubled key markets. Sales of new light vehicles should decrease in the US (-2% to 16.8mn units) due to less supportive financing and more competition with the growing second-hand market. In China, the largest passenger car market (accounting for more than 29% of global sales last year), sales started 2019 on a sluggish pace and should only gradually benefit from a recovery in consumer confidence, thanks to fading international trade tensions and more visibility on fiscal incentives and emission mandates – two headwinds which led to the first drop in sales in nearly three decades in 2018. The EU market will struggle to avoid stagnation for the whole year, at best, and will experience volatile monthly performances in sales compared to last year’s turbulences caused by the introduction of the Worldwide Harmonized Light Vehicle Test Procedure (WLTP).

The tightening in regulations, from city bans and access restrictions to stringent standards in terms of pollution, keeps on intensifying the market’s transition. The pressure is high in Europe, with the implementation of the Real Driving Emission (RDE) certification in September 2019 and the CO2 targets settled for 2020, 2025 and 2030 with threats of financials penalties. We expect a faster decline in diesel sales and a faster roll-out of new models compliant with the regulatory targets, which will keep global EV registrations at double-digit growth. Yet, the associated costs (R&D, industrial deployment, marketing) are weighting on operating margins and may force some players to adjust their portfolios and production capacities to free up funds in order to move mobility forward through investment and innovation in connected cars and autonomous driving.

At the same time, the sector still remains vulnerable to major turbulence coming from Brexit and US trade policy, with threats of US tariffs on car imports from the EU (up to 25%) and potential changes with China. We expect negotiations to finish by the end of the first semester 2019. Outcomes are uncertain, but they have the potential to disorder international trade in cars and the current implementation strategies and supply-chain interconnections of global players.