Auto manufacturers were cautiously navigating a landscape of tenuous global demand before coronavirus pandemic concerns disrupted worldwide production and upset supply and demand. Indeed, the impact on consumption was severe. However, robust balance sheets allowed most automakers to navigate a di?cult 2020 safely.

Ensuing such challenging period for auto manufacturers, 2021 has thus far proved optimistic.

Total vehicles sales in China increased 8.6 per cent year-on-year to 2.25 million units in April 2021, a 13th consecutive month of increases and a figure well surpassing that of April 2019 – a pre-pandemic level. Sales of passenger cars rose 10.8 per cent from a year earlier to 1.7 million. Meanwhile, sales of new energy vehicles (NEVs) soared 180 per cent from a year earlier to 206,000 units.

In the January-April period, automotive sales jumped 52 per cent from a year earlier to 8.74 million, as the world's largest automotive market consolidates its recovery from last year's contraction. Compared to the same period in 2019, China’s auto sales rose 4.4 per cent, in 2021.

In April, U.S. automotive sales increased to 18.5 million from 17.7 million units in the previous month – a 3.1 per cent increase. In the January-April period, auto sales rose 28.7 and 2.7 per cent from 2020 and 2019, respectively.

While both China and the U.S., supported by a rebound in private consumption in China and substantial economic stimulus in the U.S., are powering the recovery of global demand for autos, Europe seems to be lagging.

Albeit witnessing an uptick compared to the unprecedented 2020, automotive sales have largely remained below 2019 levels. Germany – Europe’s largest market and producer for new passenger vehicles, recorded a 7.8 per cent increase over 2020, in the first four months of 2021. Compared to the same period in 2019, Germany’s auto sales declined 25.6 per cent.

Certainly, brightening Europe’s outlook is its mass adoption of NEVs.

NEVs grew significantly over the past decade, underpinned by supportive policies and technology advances. Emission standards enforced prompted innovation and altered production, while incentives introduced by governments and a change in consumer trends – favouring a greener environment, buoyed consumer demand. Although to-date NEVs make up a relatively small share of the global automotive market, this shall undoubtedly change in the foreseeable future.

Europe, after surpassing China in the number of EV sales in 2020, is leading the way.

Emission targets and stimuli shall accelerate NEV demand in Europe

Europe: Passenger cars and light commercial vehicles are currently responsible for approximately 12 and 2.5 per cent, respectively, of total EU emissions of carbon dioxide (CO2). However, this is set to change. The European Commission seeks to have at least 30 million EVs on the region’s roads by the end of the decade under a plan that would require the automotive industry to massively accelerate its transformation. The goal is indeed ambitious considering the number of battery-electric vehicles currently being driven in Europe. To achieve these goals, the EU plans to revisit and toughen up its current emission standards in June 2021.

Although stimuli in the form of either tax benefits and/or purchase incentives are available in nearly all 27 EU member states, the monetary value of these benefits and incentives widely vary.

With the EU commission targets set in stone, possibly made even stricter by early Summer, we expect renewed efforts by all EU member states. The plausible move shall certainly bode well, driving growth for all auto manufacturers heavily invested in such technology.

China: The world’s biggest automotive market, aims to boost auto sales and add more charging facilities for EVs in 2021. Chinese government incentives to encourage EV demand and sales include; extending subsidies on NEVs, expediting a clear-out of older polluting vehicles, and promoting electric vehicle sales in rural areas. Overall vehicle sales in China are expected to rise this year for the first time since 2017, reaching about 26.3 million units, according to China Association of Automobile Manufacturers (CAAM).

U.S.: In his first few weeks in office, U.S. President Joe Biden sent a clear message to the world: the U.S. is serious about climate change. On his inauguration day, Biden re-joined the Paris Agreement on climate change and only recently has made the increasing use of EVs a top priority, pledging to spend billions of dollars to add 500,000 charging stations.

In addition to bolstering the current infrastructure, Joe Biden favours new tax credits for purchases of EVs and retrofitting factories for their production – the latter aiding manufacturers while the former certainly boosting demand.

Challenges within the NEV segment remain

Although NEVs generally proved more resilient to the coronavirus pandemic, the latter sending a strong signal that the transition to clean transportation and thus greener energy is moving into a phase of rapid adoption, challenges do remain.

Battery Capacity: Two key drivers for NEV growth and profitability are the battery price and energy density – a measure of how much energy a battery contains in proportion to its weight. A significant ramp-up in capacity is required to meet future NEV sales targets and economies of scale to drive prices lower.

Charging Infrastructure: The accelerated rollout of Battery Electric Vehicles (BEVs) surely needs to be matched by public charging infrastructure. To date it lacks in most countries and this creates a barrier to EV adoption. The availability of fast chargers and the ability for future BEVs to recharge 80 per cent of a battery within 15 minutes – a time considered to be acceptable when compared to refuelling an internal combustion engine, is a key target.

Disclaimer: This article was written by Christopher Cutajar, Credit Analyst at Calamatta Cuschieri. The article is issued by Calamatta Cuschieri Investment Services Ltd and is licensed to conduct investment services business under the Investments Services Act by the MFSA and is also registered as a Tied Insurance Intermediary under the Insurance Distribution Act 2018.

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