Volkswagen’s plant closure will not be Europe’s last

{"text":[[{"start":8.23,"text":"European auto investors are accustomed to bumpy rides. "},{"start":11.709,"text":"The sector is known for its tendency to chase volume, at the expense of margins, and periodically end up on the skids. "},{"start":18.227,"text":"In this light, news that Volkswagen is pondering the closure of the Audi plant in Brussels is comforting. "},{"start":23.682000000000002,"text":"Expect others to be forced to follow in its tail lights. "}],[{"start":27.68,"text":"VW’s move is somewhat of a rarity. "},{"start":30.434,"text":"It would mark the German carmaker’s first-ever plant closure in Europe. "},{"start":34.164,"text":"Ford’s Saarlouis plant in Germany is also on the way out, and the UK is, of course, no stranger to car companies ceasing production. "},{"start":41.919,"text":"Yet, by and large, overcapacity in Europe has been managed by removing shifts and reducing output, rather than wholesale scrapping. "}],[{"start":50.129999999999995,"text":"That is going to become increasingly difficult to do. "},{"start":53.108999999999995,"text":"European light vehicle sales, while cyclical, are well below their peak, which Bernstein puts at 22.4mn in 2007. "},{"start":61.364,"text":"That compares with a market of only 17.8mn in 2023, or a 4.6mn shortfall. "}],[{"start":68.94999999999999,"text":"The problem is compounded by the fact that European automakers have been losing share, especially in electric vehicles which — between battery electric (BEV) and hybrids — accounted for almost 25 per cent of the market last year. "},{"start":81.92899999999999,"text":"About a quarter of BEVs are expected to be imported from China in 2024. "},{"start":86.34699999999998,"text":"Overall, that translates into capacity utilisation for European plants of about 80 per cent, says Patrick Schaufuss at McKinsey. "}],[{"start":null,"text":"

"}],[{"start":94.35,"text":"The EU’s sanctions on imports of EVs from China are unlikely to help. "},{"start":98.75399999999999,"text":"Indeed, they may prompt manufacturers to open new production facilities in Europe. "},{"start":103.559,"text":"BYD on Monday agreed a $1bn deal to open an EV plant in Turkey, which will produce 150,000 vehicles a year. "},{"start":111.214,"text":"China’s largest carmaker had already announced plans for a plant in Hungary. "},{"start":115.30699999999999,"text":"Chery will open facilities in Spain while SAIC, maker of the MG, has flagged potential new European capacity investments. "}],[{"start":123.61,"text":"The combination of sluggish demand and competition from new entrants bodes ill for capacity utilisation. "},{"start":129.377,"text":"Trying to fill plants by winning market share — while perhaps tempting for the likes of Stellantis, down 200 basis points in the past two years to 18.2 per cent — would hurt margins. "},{"start":139.544,"text":"These are already coming under pressure from rising costs and dilutive EV sales. "}],[{"start":144.91,"text":"Fears that carmakers might embark on a renewed drive to regain volumes helps explain why the sector trades at a miserly 6 times earnings. "},{"start":152.452,"text":"Closing plants, while painful, may be a signal that the sector is instead grappling with the harsh realities of its predicament. "}],[{"start":158.99,"text":""}]],"url":"https://creatives.ftacademy.cn/album/162751-1720698080.mp3"}