EU automotive industry braces for 2H slowdown

Semi-conductor supply shortages seem to have largely subsided in the EU automotive industry for now, but logistical disruptions, high inflation and macroeconomic headwinds could present challenges to the industry later this year.

European carmakers have strong order books heading into the second quarter, and by the third quarter demand and supply are expected to realign following the normalisation of supply-side issues. The abatement of these logistical and supply chain obstacles, coupled with an anticipated slowdown in orders, is seeing some automakers ready themselves for increased competition.

Easing supply boosts first quarter

Sentiment in the automotive industry was overall positive in the first quarter, with vehicle registrations showing significant signs of improvement and inventories returning to normal levels after a multi-year period of materially constrained supply. Car registrations in the EU increased by 18pc year on year to 2.7mn units in January-March, data from the European automobile manufacturers association show.

In the meantime, car manufacturing group Stellantis had 1.3mn units in inventories at the end of the first quarter, a 21pc increase on the previous quarter and a 61pc increase year on year.

But automotive producers are bracing themselves for increasing competition and a slowdown in demand in the second half of the year. Stellantis has a healthy order book for the next three months but has "seen some relative slowdown in order intake", a spokesperson told Argus.

German carmaker BMW Group's first-quarter automotive sales inched lower to 588,000 units, weighed down by tepid demand, as high inflation in Europe and the lingering effects of Covid-19 policies in China weighed on overall demand, but the company expects 2023 sales to be stable on 2022 at 2.4mn units.

Rival German carmaker Volkswagen Group boasts a 1.8mn unit order book in Europe for the first quarter, which should carry the company through the second quarter. But the group is anticipating that competition will intensify as the demand outlook for the second half of 2023 weakens.

The auto industry is also grappling with inflated raw material costs, including lithium, copper and steel. Increased competition in the sector later this year will likely make it more difficult to pass on inflated costs to consumers.

But carmakers anticipate that costs will come down when compared with surging prices in the fourth quarter of 2022. The Argus assessed northwest European hot-rolled coil index averaged €657.79/t ex-works in the fourth quarter of 2022, which rose to €778.52/t ex-works in the first quarter of this year. The index is averaging €788.22/t ex-works so far this month, but has fallen by €73.50/t since its peak on 5 April.

Decarbonisation and electrification

Steel demand could receive a boost from the growing number of electric vehicles (EVs) that will be produced in the coming years. WorldAutoSteel, the automotive group of the World Steel Association, estimates that an EV could require up to 260-280kg more steel than an internal combustion engine vehicle, which Argus estimates requires around 900kg of steel.

There is an expectation that EVs will make up a quarter of all new car sales by 2025, according to European steelmaker ArcelorMittal. In March, the EU saw a surge of 58pc in new registrations of battery electric vehicles (BEVs), reaching 151,573 units. This equates to a 14pc market share.

Hybrid electric vehicles also had a strong month in March, with sales up by 38pc to 264,694 units.

BMW's first-quarter EV sales increased by 83pc year on year to 65,000. The company indicated that sales in China would drive the growth of its EV segment, which will reach 9pc as a share of total sales in 2023. And VW plans to increase the percentage of BEV sales from 7pc to 10pc, with Stellantis also targeting a "significantly higher" mix of EV sales by 2024/2025. But an intensifying price war across the EV space has seen car manufacturers planning to focus more heavily on margins in upcoming quarters — automakers will be more eager than ever to secure cheaper steel contracts.

By Lizzy Lancaster and Brendan Kjellberg-Motton