Fitch does not expect auto production to return to 2019 levels before 2024, the rating agency said in a report.

“New car production remains below demand as shortages of semiconductors and raw materials limit production capacity. This decline is likely to continue in the first half of 2023,” the quoted source said.

Consumer demand is likely to decrease as inflation and higher interest rates affect disposable income and vehicle financing costs.

“Rising raw material and labor costs will limit profitability, but we expect operating margins to remain stable as manufacturers continue to benefit from a favorable product mix. Limiting supply allows them to focus on next-generation products,” Fitch notes.

The agency notes that it is unclear how the supply chain will absorb rising commodity prices if manufacturers are unable to pass the costs on to their customers.

• We believe supply chain disruptions related to microchip shortages and the war in Ukraine will continue, but without a threat to sector revenues.

• The potential acceleration of the transition to electric vehicles, especially in Europe, may require a modest increase in investment.

• Higher interest rates may ease the refinancing conditions of captive financial institutions.

Fitch estimates that electric vehicles have reached 19% of total sales in Europe as of Q2 this year and 11% of global sales. In the absence of government subsidies, the profitability of electric cars lags far behind internal combustion engine models.

“Battery supply and pricing will become more important drivers of profitability, as the share of EVs will grow to 30% in the medium term, based on our expectations,” the document added.

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