Fitch Ratings’ neutral outlook for the global auto sector reflects its expectation that improved supply chains will allow for higher global vehicle production in 2024 but overall sales will be tempered by less robust economic conditions, particularly in the U.S. and China. The agency expects global sales and production to rise about 4%in 2024.
Fitch forecasts lower economic growth and higher interest rates will dampen overall vehicle demand in 2024, but high pent-up demand due to industry under production over the past several years is likely to support sales. More normalized vehicle pricing and mix will bring back some customers priced out of the market. As vehicle production is running at, or slightly above, recessionary levels for nearly three years, Fitch said it does not expect a sales decline in 2024but sales are likely to remain well below pre-pandemic levels.
Profitability for automakers and suppliers will be supported by lower commodity prices and an easing of costs, such as logistics. However, higher levels of production will lead to a normalization of vehicle mix and higher incentives, which will bring down net pricing and auto manufacturer margins from the high levels seenin the past two years.
Rating Outlook Distribution
Most issuers in the global auto sector have stable outlooks, with solid balance sheets and sufficient financial flexibility to manage through a moderate stress scenario with ratings intact. As such, barring a significant surprise in the macro environment or unexpected company-specific issues, it expects only limited rating movements in 2024. Rating actions will mainly be confined to those issuers that currently have Positive or Negative Outlooks.
Issuers with Negative Outlooks, in particular, have less headroom at current rating levels and a higher likelihood of a downgrade, particularly if macroeconomic conditions in key markets are weaker than currently expected. We donot anticipate any of the publicly-ratedautoissuers to fall into distress in 2024. Still, there are several issuers across the global automotive spectrum with little room to maneuver in the face of amoderate to severe downturnscenario, heightening the risk of potential defaults
China Continues EV Transition as Exports Grow Steadily
Fitchexpects flat to low single-digit growth in China’s domestic car market in 2024, driven by a decline of around 10% in the internal combustion engine (ICE)andhybrid electric vehicle (HEV)market and growth of 20% in the EV market. This implies a further shift toward EVs in the new car market to around 42%. Fitch expects China’s car exports to grow steadily by 20%–30% in 2024 after reaching around 4 million units in 2023.
Profitability Under Pressure from Competition
Competition in the domestic EV market is likely to remain fierce, with Chinese EV brands’ aggressive sales targets, intensive new EV offerings and joint venture (JV) OEMs’ increased commitment to the EV transition, leading to further industry consolidation. While some leading EV companies may see margin pressure ease due to economies of scale and lower battery costs, JV OEMs’ profit
