Global auto industry sees recovery amid shift towards hybrids: Report

The global automobile industry is witnessing a gradual recovery as supply chain challenges ease and demand momentum remains healthy across various regions, brokerage firm JM Financial said in a report.

Majority of global original equipment manufacturers (OEMs) witnessed volume growth for light vehicles on a year-on-year basis in both North America and the European Union (EU). While demand momentum remains robust, growth rates have moderated in these geographies. However, a slight moderation in demand was observed in Asia, particularly in China, where intense competition in the battery electric vehicle (BEV) segment led to a decline in sales. Despite this, the outlook for the China market remains neutral to positive, JM Financial said.

The report highlighted that automakers' margin performance has been mixed, with receding inflationary pressures and volume growth aiding margins, while unfavourable mix and higher marketing spends acted as headwinds. Nevertheless, new orders and enquiries in Europe have normalized to near pre-COVID levels, indicating a steady recovery in the region's automotive sector.

Global OEMs like Mercedes, BMW, Ford, GM, Stellantis, among others, have indicated strong growth in Hybrid vehicles. Toyota, for instance, noted that the pace of electrification has been slower than anticipated due to inadequate charging infrastructure. However, the company upgraded its profitability guidance as the share of Hybrids in Electric Vehicles (EVs) increased, with margins of Hybrid models nearly matching those of Internal Combustion Engine (ICE) variants. BMW also reported strong demand for its Plug-in Hybrid Electric Vehicles (PHEVs) in both the EU and the US, the brokerage report said.

Supply constraints are broadly receding across the board, with inventories reaching normalised levels. Overall, OEMs and auto component companies expect flat sales for light vehicles in CY24, while the global commercial vehicle outlook remains weak, with volumes expected to decline by mid-to-high single digits across the US and EU during the same period.

Despite easing inflationary pressures, marketing spend is expected to increase as order backlogs normalize. Additionally, the trend of premiumisation continues, with multiple new launches planned across OEMs. Most OEMs have guided for flattish operating performance, citing conflicting variables in the market, the report added.