Europe’s Energy Crisis Threatens To Decimate Disposable Incomes And Car Sales.
“We now await political responses – the U.K. looks to a large bailout and energy price cap, France may use a windfall energy tax, and Germany seems clueless”
European disposal income could be trashed by a massive increase in the price of domestic energy and that poses an existential threat to the automotive industry, with the ballooning price of electricity possibly undermining sales of battery electric vehicles too.
But industry analysts seem reluctant to dial down their sales predictions for 2022 and 2023, despite fears mounting that energy shortages may force European lights to go out and factories to shut.
Meanwhile, analysts still like the prospects for premium automakers whose buyers are
relatively immune from the energy price surge.
LMC Automotive has just marginally raised its forecast for Western Europe’s car sales, adjusting its prediction for 2022 to minus 6.2% to 9.93 million from the previous forecast of minus 6.4% and a mid-summer forecast of down 7.4%. This compares with a forecast at the start of the year that sales would bound ahead by a healthy 8.6%. The invasion of Ukraine destroyed that.
In Britain, the average family’s government-regulated annual power bills could jump to about £4,400 ($5,000) by next April from just under £2,000 ($2,300), according to a report last month from consultancy Cornwell Insight. Unregulated small businesses face much higher increases and mass corporate bankruptcies are feared. The price of domestic gas in Europe is up to 10 times higher than the price Americans face.
This scenario is being repeated across Europe, as Russia slashes its supplies of natural gas to Germany and much of Europe, and the realization is sinking in that unless there is drastic action, the disposable income of much of Europe will be slashed. Rampant inflation is already destroying citizens’ ability to buy necessities. The idea of buying a new car will begin to look like a pipedream.
Economy killing
European governments are desperately seeking ways of at least temporarily fending off this economy-killing scenario.
Investment researcher Evercore ISI said the European Union (EU) and German economic outlook looks grim on Russian energy concerns.
“Investors are now closely associating negative (natural) gas prices/futures/headlines with higher probabilities of Q4/Q1 EU production disruptions,” Evercore ISI said in a research note.
“We now await political responses – the U.K. looks to a large bailout and energy price cap, France may use a windfall energy tax, and Germany seems clueless,” Evercore ISI said.
LMC Automotive though remains sanguine, although it does concede inflation and surging electricity prices are a threat.
“The full-year forecast for 2022 remains at 9.9 million units which, being largely unchanged from July, signifies that the selling rate is expected to strengthen over the remaining months of the year. However, market activity in the region is sure to be tempered by the supply-side constraints. Meanwhile, demand-side factors remain a concern as living costs are stretched by the continuing rises in inflation and surging energy prices,” LMC Automotive said it its latest monthly report.
Other experts sound a bit more alarmed.
Germany’s IFO institute said the county’s automotive industry condition has deteriorated sharply.
“The general darkening of mood in the economy is also reflected in the automotive sector, with suppliers much more pessimistic than manufacturers,” said IFO Institute spokesperson Oliver Falck.
In Britain car sales rose (1.2%) in August for the first time since February, but David Leggett, automotive analyst at GlobalData, said with price inflation and interest rates heading up, an economic recession for Britain is in prospect, and new car sales will weaken later this year and into 2023.
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