Car Sales Slide, But Tesla Model 3 Debuts With A Smash.
“Upcoming European CO2 regulation remains a game changing event”
Car sales in Western Europe slid 3.7% in the first quarter as forecasters predicted a stagnant year at best, but the performance of Tesla’s Model 3 stood out amongst the gloom.
The Model 3, in only its 2nd month on the market, was the biggest selling electric car in Germany in March, according to official statistics, with 2,224 sales.
Big problems confront the industry, including a possible tariff war, Brexit failure, the high cost of electrification, and most troubling of all, the possibility of EU penalties of more than $34 billion from next year because it can’t meet carbon dioxide (CO2) emissions rules.
Sales in Western Europe, which include all the big markets like Germany, Britain, France, Spain and Italy, fell to 3.67 million in the first quarter from 3.81 million in the same period of 2018, according to the European Automobile Manufacturers Association, known by its acronym in French, ACEA.
Standout performer in the period was Fiat Chrysler Automobiles (FCA) for the wrong reasons. FCA sales dived 12.7% to 244,041, including a dismal performance from Alfa Romeo, down 41.5% at 14,136. Fiat sales were also cause for concern, off 16.0% at 167,416. Fiat’s weakness has triggered media reports that PSA Group of France might be interested in buying Fiat Europe, or setting up some kind of affiliation.
PSA Group bucked the trend with only a 1.0% fall to 649,814. That meant PSA Group and its Peugeot, Citroen, DS, Opel, and Vauxhall brands had a first quarter market share of 17.2%, up from last year’s 16.7%, in second place behind market leader Volkswagen’s 23.3%. Volkswagen includes brands like VW itself, Audi, Porsche, SEAT and Skoda. VW Group sales slid 2.1% in the first quarter to 883,987.
Ford of Europe also performed poorly, down 10.7% at 242,573, ACEA said. Ford has promised big changes to restore its profitability in Europe. Nissan was down 26.4% at 109,240.
Investors are nervous about the prospects for Europe’s car market and its leading manufacturers which face a slew of harsh problems. Any day now there might a trade war with the U.S., as President Trump seeks to right the imbalance which allows European imports to the U.S. to carry a 2.5% tax, while cars and SUVs going the other way must pay a 10% levy. Sales in China are weakening and this bodes ill for German manufacturers like BMW, Audi, Mercedes and Porsche which make massive profits there. Overall demand in Europe is weakening and car sales have been down for six months in a row, according to Citi Research. Brexit talks threaten German and French access to Britain’s lucrative auto market. While sales slip and profit margins erode, all the big auto makers in Europe need to invest heavily in electric cars, not least because harsh new rules in 2020 mean internal combustion engine’s days are numbered.
And it’s the EU fuel economy rules which pose by far the biggest problem, investment researcher Evercore ISI said.
“Upcoming European CO2 regulation remains a game changing event in our view. It will transform the industry and create unprecedented challenges as of next year,” Evercore ISI analyst Arndt Ellinghorst said.
“The industry last year reported a CO2 footprint of 120.5 grams per kilometer (g/km) significantly more than the 2020 target of 95 g/km. Adding vehicle content like electrification, engine downsizing will cost an estimated 15.5 billion euros ($17.9 billion) in order to avoid penalties. The trend to larger vehicles, falling diesel penetration and real-world emission certification (current EU fuel economy rules) have made it 20 to 30% harder to comply,” Ellinghorst said.
Volkswagen has said penalties could reach 30 billion euros ($34.6 billion).
Meanwhile forecasts for sales growth in Western Europe are being slashed. LMC Automotive now forecasts sales will rise a barely perceptible 0.3% in 2019 after increasing 0.8% in 2018. Moody’s Investors Service said sales will rise 0.4% in 2019 and 0.6% in 2020. But that doesn’t look to bad compared with prospects in the U.S. for 2019 sales down 2.9% in the U.S. and down 2.0% in China, according to Moody’s.