- Assessment: German automobile corporations experience a downturn in the initial six months
Slowdown in the global automotive market - German carmakers continue to struggle, as per a study. Interestingly, the earnings took a hit: Collectively, Volkswagen, BMW, and Mercedes-Benz recorded an operating profit (EBIT) of 25.9 billion euros from January to June, a 18% decrease from the previous year. This information is based on an analysis by EY, which analyzed the financial data of the 16 largest automakers worldwide.
Despite a 3.7% increase in total revenue to approximately one trillion euros compared to the previous year, the operating profit (EBIT) saw a 7.8% decrease to 80.4 billion euros. Japanese automakers, notably, showed impressive growth with a 37.1% profit increase and a 14.2% increase in revenue. This impressive performance is attributed to the depreciation of the yen, which makes Japanese products cheaper abroad and results in currency gains.
Profits may face additional challenges
EY market analyst Constantin Gall noted: "The profit growth of Japanese manufacturers, driven by currency effects, disguises the much grimmer actual profit situation in the automotive industry." Most other manufacturers are grappling with substantial losses. "Given high investments in electric vehicles, component supply issues, problematic model changes, and promotional offers, profits are likely to face further challenges."
Gall anticipates widespread cost-cutting measures. Manufacturers have limited control over regulatory conditions. "Consequently, it's even more crucial that they optimize their internal structures, implement cost savings, and invest judiciously in areas that help them highlight their unique brand identity and performance promise."
Kia emerges as the most profitable automaker group
Manufacturers faced profit pressures in the first half of the year: The average EBIT margin, which measures the operating profit relative to revenue, dropped by 1 percentage point to 8.0%. Kia held the title of the most profitable automaker group with a 13.1% EBIT margin. South Korea leads the pack, followed closely by Mercedes (10.9%) and BMW (10.8%), both of which saw marginal decreases in their EBIT margin compared to the previous year. Even Tesla, an electric vehicle manufacturer, saw a significant decrease in its EBIT margin - from 10.5% to 5.9%.
Gall summarizes: "The party in the automotive industry has come to an end." The downward trend in sales has accelerated. After a minor decrease of 0.6% in the first quarter, the decline from April to June was 3.3%.
An improvement does not appear imminent. The economy is sluggish, and customer demand is low, stated Gall. Moreover, there's uncertainty around the future of internal combustion engines and domestic challenges such as expensive software errors.
According to Gall, manufacturers now face tough decisions: "Should they continue to invest heavily in the development of new electric vehicles or focus on conventional engine models, which are currently enjoying higher demand?"
The struggles in the global automotive market have also impacted German carmakers, such as Volkswagen, BMW, and Mercedes-Benz, leading to a 18% decrease in their collective operating profit from January to June compared to the previous year. Despite Japanese automakers showing impressive growth with a 37.1% profit increase, most other manufacturers continue to grapple with substantial losses and face additional challenges, according to EY market analyst Constantin Gall.
