The automotive sector is going through a phase of important structural changes which could profoundly upset the sector and lead to the exclusion from the market of many operators. The main challenges, for which huge investments are still needed, come from: transition from combustion engines in favor of e-mobility, fuel cells and other engine systems, digitization and autonomous driving, changes in consumer habits.
Analysts estimate that global investment in the electric vehicle segment is projected to hit $300 billion over the next five to 5 years. At the moment the ratio between the production of combustion vehicles and the production of electric/hybrid vehicles is still 10:50; however, it is expected that EV sales will account for approximately 15% of total sales in 2025. In addition, new players from outside the sector are appearing on the market, many of whom can count on technological advantage and solid financial situation: the relative simplicity of electric motors is attracting players from outside the sector, such as the British appliance manufacturer Dyson.
atradius underlines how the current context does not seem favorable to changes and investments: global car sales are expected to contract by 5% this year and the current phase of economic uncertainty does not bode well for a recovery in 2020. While the US's imposition of punitive tariffs on vehicles and auto parts has been suspended for the time being, that risk is always on the horizon: so far trade tensions have resulted in reduced production and sales, shrinking profit margins and liquidity issues for both original equipment manufacturers (OEMs) and suppliers. Here then is that the race for innovation represents the most important challenge for most of the medium-small suppliers: many of these, in fact, are in serious difficulty in the current phase of the crisis, with declining sales and continuously declining profit margins. And, taking into account the technological and/or financial limitations, the future looks very uncertain: late payments and insolvencies have already started to show an increase, especially in the case of components and spare parts with low added value.
In the next five years analysts expect an increase in credit risk for many structurally weaker suppliers, with a consequent reduction in liquidity and an increase in payment delays and bankruptcy cases, even if the current issues related to growing protectionism and restrictions on free trade do not materialize. In the worst case, a major disruption to the industry will drive many small suppliers out of business. The future of many automotive companies depends to a large extent on the speed and scale of changes in the marketplace. While climate change and pollution issues are forcing governments around the world to consider phasing out petrol and diesel engines over the next decade, theThe speed of transition from combustion engines will largely depend on the size of government incentives in favor of Research and Development and the purchase of electric vehicles. Other important aspects are the availability of charging infrastructure and ETR (rare earth elements) used for battery production and the price relationship between electric vehicles and motor vehicles.
After the solid growth recorded in 2017, the performance of the Italian automotive sector deteriorated in 2018 and the medium-term outlook is rather negative, with an increase in credit risk in the supplier segment. According to the ACEA dataAfter four years of growth, vehicle sales in Italy decreased by 3,1% in 2018 and by 3,5% in the first half. Last year, domestic demand for automotive components (-7,5%) was partially offset by the increase in exports (+6,6%); however, export expansion has stalled due to the slowdown in the automotive sector in Europe. And, in a context of modest GDP growth and growing uncertainty, vehicle sales on the domestic market are expected to remain flat for at least the next 12 months: diesel cars are feeling the effect of eco-taxes, while government subsidies for vehicles low-emissions benefit above all foreign-made cars.
On average, payouts in the Italian automotive sector fluctuate between 60 and 90 days and between 120 and 150 days depending on the ultimate buyer and whether the required working capital can be obtained from banks or suppliers. Payment habits had been pretty good up until the first half of 2018, but since then non-payment cases recorded an increase with a trend that should continue in the short term. Furthermore, bankruptcies are expected to increase by around 12% in the next 5 months, especially for small suppliers, especially in the combustion engine segments, due to the contraction in demand, the strong level of competition and fragmentation of the distribution channels. In 2017, many small second-tier providers have already experienced a deterioration in terms of their balance sheet, solvency and liquidity; at the same time tire distributors/wholesalers are faced with stiff competition and changing market conditions.
Given the current changes in the market, in Italy the medium-term prospects for the sector remain rather modest. As OEMs introduce cost-cutting measures, pricing pressure on suppliers is set to increase and could lead to shrinking profit margins and worsening slow payments. Although generally considered innovative and technologically advanced, Italian Tier XNUMX producers show a low level of capitalization and are heavily dependent on banks in terms of capital expenditure: this could prove to be a weakness due to the continuing problems in the Italian financial sector . Furthermore, at the moment it seems that many small second-tier suppliers, with a modest share of capital expenditure and active in the production of low-tech components, are unable to progress along the value chain and increasing the risk of 'insolvency. Finally, the situation is aggravated by the prospects in terms of support from the Government to support the sector (for example, through plans to sell cars on the domestic market, support for Research and Development, tax breaks), limited by budget cuts and by the ever-increasing level of public debt.
