May 2024

Industry trends
Automotive
A sharp reduction in production
and sales after a robust
performance last year

Global overview
After a 11.1% surge in 2023 we expect motor
vehicles and parts output growth to slow
down to 0.8% in 2024 and to 1.4% in 2025,
due to subdued demand.
Backlogs of orders have returned to normal
levels as supply conditions have normalised,
while high interest rates weigh on production
and sales. In many advanced markets credit
conditions remain tight. This explains why
consumers are still reluctant to spend, despite
decreasing inflation and a gradual recovery

in real wages. Supply disruptions emanatingfrom the Red Sea attacks on ships remain adownside risk for the industry.

Currently electric vehicle (EV) sales are facing
headwinds. However, we expect global hybrid
and EV sales to account for 59% of global lightvehicle sales by 2030, up from 10% in 2020.

In the mid-and long-term the US Inflation
Reduction Act will support EV production
and sales in the US, while in Europe the shift
towards electrification will gain momentum inthe coming years. In China, the EV transition
maintains a strong momentum, and Chinese
EV exports are accelerating. However, this has
increased the risk of trade frictions. While theUS has already raised trade barriers for Chinese
EVs and related batteries, the EU Commission
has started an investigation into alleged statesubsidies for Chinese EVs and is threatening
to impose punitive tariffs on imports.

Asia and Oceania

Americas

In the long term, emerging Asian markets
will lead global production growth, as low
vehicle densities in China, India and othercountries leave ample room for growth amid
an increasing middle-class.

Industry performance forecast
Europe1

Austria

Netherlands

Australia

New ZealandBrazilBelgium

PolandChina

Phillippines

CanadaCzech Republic

PortugalHong Kong

Singapore

MexicoDenmark

Slovakia

India

South Korea

USA

FranceSpain

Indonesia

TaiwanGermany

SwedenJapan

ThailandHungary

Switzerland

Malaysia

VietnamIrelandTurkeyItaly

UK

Excellent
The credit risk situationin the sector is strong /business performance in thesector is strong compared toits long-term trend.
GoodThe credit risk situationin the sector is benign /business performance in thesector is above its long-term trend.
Fair
The credit risk situationin the sector is average /business performance in thesector is stable.
Poor
The credit risk in the
sector is relatively high /business performance in the
sector is below its long-term trend.
Bleak
The credit risk in the
sector is poor / businessperformance in the sector is weakcompared to its long-term trend.

May 2024

Industry trends
Automotive
Motor vehicles
and parts output

2022

2023

Global4.8

11.1

Americas

7.0

6.8

2024*

2025*

Global registrationof new light vehicles

2022

0.81.4

All types

-0.9

1.3

1.3

Combustion
engine vehicles

-9.1

2023

2024*

2025*

10.8

2.6

3.5

2.2

-6.4

-5.7

26.5

25.0

20.4

12.8

61.8
38.6
Asia-Pacific

Europe

4.2

3.4

13.1

12.6

0.3

1.5

1.7

1.0

Electric vehicles

Hybrid vehicles

18.3

37.2

Year-on-year, % change /*forecast – Source: Oxford Economics

Strengths and growth drivers

Constraints and downside risks

Emerging markets. Low vehicle density and a growing middleclass in emerging markets is driving demand, especially in Asia.

Geopolitical risks. The sector relies on a global network of suppliers
and is vulnerable to protectionism, tariffs and disruptions.

Green transport. New model launches and ranges, decreasing
prices, purchase incentives and CO2 reduction policies will drive
demand.

Advanced market demographics. High vehicle density and aging
populations imply a decrease in future demand.

New technologies. McKinsey predicts the autonomous driving
car market could reach sales of USD 400 billion by 2035.

New players. Tech companies and start-ups are disrupting theEV market, creating new competitors for traditional automotivemanufacturing.
Supplier obsolescence. Manufacturers of combustion engine
vehicle parts will need to change or face extinction.

2

May 2024

Automotive outlook
AmericasNorth America: Automotive key figures

2022

2023

2024*

2025*

Production index (real)

7.0

7.9

1.5

1.0

Gross output (sales), (real USD)

-1.9

6.5

0.1

1.1

Investment, (real USD)

6.2

9.9

1.3

3.4

CanadaGross operating surplus (profits), (nominal USD)

12.0

17.2

-0.1

-0.2

MexicoYear-on-year, % change /*forecast – Source: Oxford Economics

USATight credit conditions weigh on demand
After a 6.5% increase last year, US automotive
output growth is forecast to decelerate to3.1% in 2024 and 0.9% in 2025. After growing
14.6% last year, car sales are expected toincrease by only 2.5% annually in 2024 and2025. Tight credit conditions continue toweigh on automotives demand, despite anupward revision of the consumer spending
outlook. On the positive side, order backlogs
remain at elevated levels, which should
support short-term growth.
Massive government support for EVproduction, yet a bumpy start
The Inflation Reduction Act (IRA) supports
EV production and sales growth and islikely to attract significant new investment.
The Act aims to reduce reliance on imports
and to encourage domestic investment inareas such as batteries and chips. The newrules include a tax credit for EV purchases,
based on the location of battery components
and minerals produced domestically or incountries that are US free trade partners like
Canada and Mexico.

3

That said, recent sales of EV in the US haveremained below expectations, and some
US automotive producers have delayedinvestments and production plans for EVs
for the time being. Cost remains a barrier, aselectric vehicles tend to be more expensive
than traditional combustion engine
vehicles, in particular in the SUV and pickup
segments. Infrastructure is also a challenge,
as significant investment in a public
network of fast chargers and upgrades to theelectricity grid are required.
In order to protect US manufacturers, theUS government decided in mid-May 2024 toraise tariffs on Chinese EV imports from 25%
to 100%. Tariffs on lithium-ion batteries will
increases from 7.5% to 25%.
The 2024 elections could be a game changer
Due to the IRA we expect an increasing
adoption of electric vehicles in the mid- andlong-term. However, if former President
Donald Trump returns to the White House
and Republicans gain full control of Congress
after the November 2024 elections, it is likelythat tighter climate regulations and certain
subsidies to promote EV production and sales(such as the tax credits) would be repealed.

Industry performance forecast
BrazilUSA
Excellent
The credit risk situation in thesector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in thesector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in thesector is average / businessperformance in the sector
is stable.
Poor
The credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

May 2024

Automotive outlook
Asia PacificAsia Pacific: Automotive key figures

20222023

2024*

2025*

Production index

4.2

13.1

0.3

1.7

Gross output (sales), Real USD

6.9

15.1

-0.4

1.5

Investment, Real USD

7.4

16.6

1.0

2.0

-16.0

2.3

1.2

8.8

Gross operating surplus (profits), Nominal USD
Year-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Australia
China
Hong Kong
India
Indonesia

China
Subdued domestic demand due to low
consumer confidence
After increasing 14% in 2023, we expect
Chinese automotive production growth toslow down to 3.6% in 2024 and to 1.2% in
2025. Lower consumer confidence weighson domestic car sales, which are forecast tolevel off this year and to increase only 1.3%
next year. At the same time export demand isdecreasing.
Performance in the EV and hybrid segments
remains robust, with local brands increasing
their domestic market share and expanding
overseas. In the domestic market a tax
incentive on EV passenger cars has been
extended until end of 2027. However, lower
export demand will affect production growth.
High competition in the EV market is an issueThe booming EV market has attracted
many new players, leading to increasing
competition, and a price war since 2023
has eaten into margins of producers. A lot ofsmaller businesses are not yet breaking evendue to high input costs and are heavily reliant
on external funding by investors. Without
continuous capital flow, those firms could
quickly fail.
China has strong competitive advantages
that have pushed it up in global EV export
rankings. However, the US has already
decided to raise tariffs on Chinese EV imports(see above). The EU Commission has started
an investigation into alleged state subsidies
for Chinese EVs, threatening to impose
punitive tariffs on imports later this year.

4

India
Inflation and interest rates weigh on demand
Automotive production growth is forecast
to slow from a whopping 17% to 3.1% in
2024 and 1.3% in 2025. Order backlogs
have decreased, and high inflation and pastmonetary tightening weigh on demand.
That said, domestic EV and related battery
production is set to grow in the coming years.
A rising middle class provides good sales
opportunities in the mid- and long-term.

JapanSluggish exports drag down growth
After increasing 14% in 2023, automotive
production is expected to contract 4.7% in
2024, mainly due to sluggish demand fromthe US, Europe and China. China’s rapid
EV transition and growth in home-grown
EV brands will dampen Japanese export
opportunities. Domestic car sales are forecast
to increase by only 2% this year, as therecovery of consumer spending will remain
slow.

JapanMalaysia
New ZealandPhillippines
Singapore
South Korea
TaiwanThailand
Vietnam
Excellent
The credit risk situation in thesector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in thesector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in thesector is average / businessperformance in the sector
is stable.
Poor
The credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
Bleak
The credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

May 2024

Automotive outlook
EuropeEuropean Union & UK: Automotive key figures

2022

2023

2024*

2025*

Production index

4.3

12.7

1.6

0.1

Gross output (sales), (real USD)

9.3

12.8

0.7

0.2

Investment, (real USD)

3.1

5.3

2.3

2.6

Belgium

Gross operating surplus (profits), (nominal USD)

-9.2

27.9

5.6

-0.1

Czech RepublicYear-on-year, % change /*forecast – Source: Oxford Economics

Industry performance forecast
Austria

Denmark
FranceEurope
Higher credit risk for small and mediumsized suppliers
We expect automotive production in theEU and the UK to slow down to 1.6% in2024 and to 0.1% in 2025. Order backlogs
have substantially decreased, and demandconditions remain subdued for the timebeing. Supply chain disruptions caused byshipping attacks in the Red Sea remain adownside risk for the industry.
As suppliers are dependent on the car
manufacturers’ sales plans, their prospects
are dimming. Purchase figures are lower
than expected, making suppliers’ plansincreasingly uncertain. The era of discounts
has also returned, putting their margins
under pressure. As a result, we expectinsolvencies and payment defaults amongsuppliers to increase this year.
Additionally, the shift away from internal
combustion engines has started to reshape
the industry and its competitive structurein Europe. Many Tier 2 and Tier 3 suppliers
could lack the technological or financial
means, or both, to climb up the value chain,and may be forced to leave the market in the
coming years.

EVs in Europe: Chinese competition is amajor challenge

Germany

Currently high pricing and a lack of charging
infrastructure make EVs less appealing, but
we expect this segment to grow strongly inthe coming years. Chinese manufacturers
are increasingly trying to enter the European
market with affordable EVs. Lower prices
would be a significant incentive to buy anelectric car.

Hungary

The current advantage of Chinese
manufacturers compared to their European
peers is that they offer cheaper models, andtend to be quicker at rectifying faults andadapting to market conditions. To counteract
this, domestic manufacturers would haveto offer more EVs in the low and medium
price segments in the near future. In orderto protect the European car industry, the EUCommission has started an investigation into
alleged unfair state subsidies for ChineseEVs, and is threatening to impose punitive
tariffs on imports.

Portugal

Ireland
Italy
Netherlands
PolandSlovakia
Spain
SwedenSwitzerland
TurkeyUK
Excellent
The credit risk situation in the
sector is strong / businessperformance in the sector is strong
compared to its long-term trend.
GoodThe credit risk situation in the
sector is benign / businessperformance in the sector
is above its long-term trend.
Fair
The credit risk situation in thesector is average / businessperformance in the sector
is stable.
PoorThe credit risk in the sector
is relatively high / businessperformance in the sector
is below its long-term trend.
BleakThe credit risk in the sector ispoor / business performancein the sector is weak compared
to its long-term trend.

5May 2024

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The Netherlands
Phone: +31 (0)20 - 553 91 11
info@atradius.com
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