Automotive

The global automotive industry is entering a period of transition. In 2024, global car sales growth will stabilise (+2-3% YoY) after rebounding in 2023 (+10% YoY, 88 million units), remaining slightly below pre-pandemic levels.

Despite the momentum of electric vehicles (EVs), last year's "big winners" that registered record growth (+32% YoY in global sales), most automotive suppliers and manufacturers will find it difficult to escape the macroeconomic situation in the coming months. Rising interest rates and tighter credit conditions will continue to weigh on the financing capacity of households and companies (including commercial fleets) in the coming months. In addition, household confidence indicators in the US and Europe suggest that a proportion of households are likely to postpone vehicle purchases until 2025.

The technology race, geopolitical fragmentation and the industrial programmes of many countries will reshape regional industrial fabrics and global value chains.

Asia asserts itself as the nerve centre of the global automotive industry

Asia is the world's leading producer and consumer of vehicles, accounting for 25% of vehicle sales in 2023. Asian manufacturers dominate global sales (30 million vehicles sold in 2023), although there is considerable regional diversity. For the time being, the sector will be dominated by a long-established powerhouse comprised of Japan and Korea. Toyota has been the world's leading manufacturer since 2020 (in terms of number of vehicles sold), with 11 million units sold in 2023. China has made a lightning breakthrough in the electric segment. It is now emerging as the future automotive hub of Asia. Other countries such as India and Vietnam have also made their mark in recent years.

China will continue to strengthen its position as the world's automotive powerhouse in 2024 thanks to EVs. It is the world's leading producer and consumer of electric cars – 6 million EVs have been sold in China last year, plus nearly 3 million PHEV (Plug-in Hybrid Electric Vehicle). As a result, sales of electric and hybrid vehicles are set to exceed 10 million units in 2024. Just as mastery of the internal combustion engine was the key to the success of the American, European, and Japanese car industries, electric motorisation is now giving the Chinese car industry a comparative advantage.

Russia's partial isolation since 2022 created a significant export channel for Chinese carmakers (combustion cars), while Western, Japanese, and Korean manufacturers have withdrawn. Western sanctions against Russia have benefited the Chinese car industry: Russia was the leading importer of Chinese vehicles in 2023, importing 900,000 units. In June 2023, Chinese cars accounted for 49% of new car sales, compared with 7% a year earlier. This windfall effect partly enabled China to overtake its rival Japan for car exports in 2023, a performance it should match in 2024.

In addition, the electric vehicle segment also supports Chinese car exports. Of the 5 million vehicles exported in 2023, around 30% were electric. The trend is set to continue in 2024.

However, this unbridled growth has come at the cost of substantial government subsidies and a fierce margin war between manufacturers. The result is a sector that is ultimately fragile as very few EV manufacturers are profitable; BYD is currently one of the few. Furthermore, support from Chinese authorities is creating a huge distortion in competition vis-à-vis foreign manufacturers.

US auto sector will be more resilient than in Europe

In the US, we forecast production growth of 4% YoY in 2024, supported by sales growth of 2.5%. In Europe, we expect weak industry growth (production and sales) of between 1% and 2%.

In the European Union (EU), EVs are driving new car registrations. They will account for 15% of new car sales in 2023. Sales will continue to grow in 2024 (+35% YoY), while from 2035 only EVs will be allowed for sale in the EU. In the US, our forecasts are more mixed: the market share of EVs will remain close to 10% in 2024.

Nevertheless, these two car markets will remain largely dominated by internal combustion engines in the medium term. SUV sales account for around 50% of new car registrations in Europe. On the other side of the Atlantic, light trucks account for 80% of all new car sales.

However, the strong performance of EVs will not be enough to offset the overall decline in car sales since 2019. In Europe and the US, semiconductor shortages and the Covid-19 pandemic both halted the growth momentum in new car registrations posted during the 2010s. Given medium-term financing conditions, a return to pre-crisis volumes will not occur before 2025 in the US and 2027-28 in the EU.

Simultaneously, the US and EU seek to strengthen their industrial and technological autonomy

On the one hand, this involves developing battery production capacity (Li-ion) and at the same time diversifying sources of supply of critical raw materials to escape the virtual Chinese monopoly.

In the US, under the Inflation Reduction Act (IRA), USD 65 billion will be invested over the next few years to develop gigafactories.

In Europe, regulations require European carmakers to produce only electric vehicles from 2035. The aim of the Critical Raw Materials Act (CRMA) is to develop European production and supply capacities for critical raw materials. To achieve this, the EU must acquire 10% extraction capacity, 40% refining capacity and 15% recycling capacity by 2030 (as a percentage of annual consumption). Progress is being made but the region is still a long way off from self-sufficiency.