CEE Special | Fall of car production - supply or demand?
The recent slowdown of the German economy has raised eyebrows in CEE economies, as it has been accompanied by a visible collapse in car production. As of June, German annualized car production plummeted to 4.7mn (about one million less compared to 2015-17 average annual production) and reached a level close to the lows seen in 2009. The fall in car production – in both speed and magnitude – is strongly reminiscent of the situation in 2009.
When we compare the current collapse in car production and sales with the situation in 2009, we see two major differences. In 2009, the collapse in car production was clearly the result of negative demand shock resulting from rising unemployment, denting the disposable incomes of households, and a big reversal of the credit impulse. At the moment, we do not see any of the above happening, suggesting that this collapse is not being fully driven by the economic cycle. Falling new car registrations in the EU have been exclusively driven by falling demand for diesel cars.
In the next five years, we can expect substantial shifts in the composition of car production in Europe. During this period, overall demand and production could be temporary dampened by deferred car purchases, as the true era of Battery Electric Vehicles is to start only after 2025. This could lead to temporary lower GDP trajectory in the Czech Republic, Hungary and Slovakia (i.e. 10% lower car production lowers GDP level by 1 percent). In the meantime, a network of charging stations and battery supply is blossoming across Europe. According to the T&E report, there should be a high enough capacity of battery supply built in Europe (131 GWh) by 2023, meeting the demand of European car producers. More than half of European battery production is planned to be located in CEE (in Poland and Hungary). CEE countries should quickly benefit from larger investments into electromobility once car producers scale up their EV production and eye on keeping costs down.