• November 30, 2022

New Galaxy S23 Ultra Leak Reveals Samsung’s Significant Upgrades

Samsung’s forthcoming Galaxy S23 Ultra will gain some significant improvements over the current Galaxy S22 Ultra, according to the latest leaked info. Taking to Twitter, persistent leaker Ice Universe has revealed …

Organizations That Maintain Trust In 2023 Will Thrive

The 2020s are off to a tumultuous start. Individuals have experienced extraordinary political and social upheaval, war on the European continent, the reemergence of infectious diseases, financial instability, scandals, and extreme …

Former Spectrum Strikers Sue Union

Nearly six years ago, around 1800 cable technicians based in the New York City area went on strike against Charter-Spectrum, who they accused of union-busting in the years following Charter Communications’ …

Europe’s carmakers have already written off 2022 as a down year for volumes, despite many posting increased profits in the third quarter. But analysts expect 2023 to be a more testing environment for their bottom lines despite an expected increase in sales.

Economic recession pain is beginning to be felt, led by Germany. VW’s volume brands could lose money in 2023, according to an investment banker.

Forecaster LMC Automotive reckons sales in Western Europe will fall 6.4% in 2022 to 9.91 million after predicting a 5.9% decline last month, while next year it expects a healthy looking 11.1% increase to 11.01 million. The trouble is, Western Europe’s (includes all the big markets like Germany, France, Britain, Italy and Spain) sales of cars and SUVs have dived from 14.29 million in pre-pandemic 2019. Much of the industry’s production is geared to meeting a market more than 3 million bigger than the “improvement” expected next year.

According to U.S.-based Auto Forecast Solutions, sales in the European Union (minus Britain and plus eastern Europe) will stage a slight recovery in 2023 but won’t push through 9 million, or return to 10 million before 2025.

In 2022, European markets were stagnant at best, but profits were high because of unprecedented conditions. The chip shortage crimped big overall sales targets and meant most carmakers had to switch to selling fewer vehicles but made sure they were mainly high-profit margin ones. Third-quarter profit reports showed continued strength, but pressures will mount in 2023.

· Volkswagen Q3 operating earnings €4.3 billion, (almost the same in $) up 52.6% versus the same period of 2021, and after €1.6 billion Russia write-off. Q3 margin 6%, 2022 target 7 to 8.5%.

· Mercedes Q3 earnings up 83% to €5.2 billion. 2022 margin forecast raised to 13 to 15% from 12 to 14%.

· BMW Q3 net profit climbed 23% to €3.18 billion. Margin to reach high-end of 7 to 9% profit margin forecast for 2022.

· Renault and Stellantis don’t breakout profits in first and third quarters.

Advertisement

LMC Automotive said Western Europe was currently functioning at about 70% of pre-pandemic capacity. There would be some recovery in 2023 even with a recession because of a sales backlog.

“Even though the economic backdrop has deteriorated markedly as the year has progressed, the supply of vehicles is unable to keep up with demand. From this very weak base of 2022, we do expect some recovery in sales volumes for the region in 2023, as the supply-side issues ease back through the year,” LMC said in report.

“A build‐up of sales backlogs will support this improvement despite key economies facing recession in early 2023. However, even with some improvement assumed next year, the market will remain far below what was considered normal operating volume pre‐pandemic,” LMC said.

Germany, Europe’s biggest market, is in the throes of a sharp downturn. Experts say the recent price jumps for electricity and gas will reduce the purchasing power of private households and lead to a decline in consumer spending. Gas shortages threaten production at some German auto factories. Also, the slowing world economy will dampen not only exports but also investment.

Germany’s Ifo Institute put it this way.

“Worries about a collapse in demand are now gripping automakers and their suppliers. Even though sales prices are higher, evaporating demand and rising material and production costs are causing a deterioration in earnings,” Ifo director Oliver Falck said.

As for all of Europe, Berenberg Bank of Hamburg said the 2023 outlook is murky at best, but profits shouldn’t be hit too much.

“Headwinds include energy, labor costs and used vehicle prices with some likely relief from raw materials and currency. Demand remains uncertain, and we still factor in a worsening mix to be conservative. We retain our 2023 (overall) EBIT (earnings before interest and tax) at about €15 billion, which implies the segment’s earnings would be 4% lower, year on year,” Berenberg said in a report.

But other reports are more concerning, and investment bank UBS reported that even a premium brand like VW’s Audi was reporting new orders slowing down. VW’s volume brands could lose money next year.

“So far, negative commentary has come from mass-market brands. We think within premium it’s the entry-level or “aspirational” segment that is seeing downward pressure, while the higher-end premium and luxury still appear robust. We see a risk of VW group’s earnings per share halving in 2023 as the volume brand group (VW brand, SEAT, Skoda) might become loss-making, whereas Audi should remain profitable, but unlikely with a operating margin above 10%,” UBS said.

Advertisement

Leave a Reply

Your email address will not be published.