Ferrari has recently reported better than expected earnings last week. The luxury carmaker shut its factory in March as the coronavirus ravaged the brand’s Italian home but total shipments of Ferrari supercars increased 5% to 2,738 during the month-long furlough. Better-than-expected earnings – $1.02 billion, better than the projected $852 million caused Ferrari’s share prices to surge, making the Italian luxury carmaker’s market value worth more than mass market consumer car manufacturers Ford and General Motors.
“The unexpected and sudden nature of the impacts of the pandemic are hitting the autos sector hard, with unprecedented levels of uncertainty around prospects for meaningful global recovery,” said Colin Couchman, executive director, global autos demand forecasting at IHS Markit.
The news comes amidst tempered expectations as factories resume production in China with business data firm IHS Markit forecasting lowered expectations as new COVID-19 safe work requirements makes it impossible to return to previous operational capacity, especially in a market of weaker consumer demand. From January through March, Chinese carmakers endured their weakest quarter as the lockdown shuttered factories, dealerships and kept consumers at home.
According to the China Association of Automobile Manufacturers, demand started to return in March, an improvement from February’s 79% drop but sales were still down 43% compared to the year before. While nearly all dealers across mainland China are back to work, and there are signs of an encouraging uptick in showroom traffic, consumer confidence remains fragile, quarterly sales declined year on year to 3.7 million vehicles with concerns on secondary impacts from the global contagion, which could further disrupt the recovery.
IHS Markit most recent analysis projects Global light vehicle sales down 22% to 70.3 million units for 2020 in the wake of covid-19. Likewise, regional forecasts have also been impacted substantially, and impacts are being felt as facilities across key regions remain closed, while recovery gets underway in others.
Over in North America, the US is expected to lead global automotive declines with a 26.6% fall in domestic vehicle sales, the lowest volume since the industry recovered from the 2008 Great Recession. Speaking to CBC news, Dennis DesRosiers of DesRosiers Automotive Consultants said that April sales of Canadian automobiles fell by nearly 75%, the second straight month of double-digit declines after March sales fell by 48% as the epidemic took hold across Canada.
The data indicates a different assessment when it comes to luxury cars with Tesla reporting sales of 10,160 vehicles in China for March 2020, its highest ever monthly sales in the world’s largest car market. Like Ferrari and Bugatti, luxury sports cars are having unanticipated recoveries from a bout of high profile revenge spending initiated by bored high net worth individuals.
Speaking to South China Morning Post, China Passenger Car Association secretary general Cui Dongshu, said Tesla sold 30% of the electric vehicles in the Chinese mainland with data showing that Elon Musk’s brand selling 2,620 luxury EVs in January and 3,900 units in February. Tesla, which aims to produce 150,000 Model 3 sedans from its Shanghai factory.
In an industry where profit margins are around 5-10%, the report also makes a comparative study on how much more profitable Ferrari was compared to other carmakers: BMW would need to sell 30 vehicles to equal the earnings of one sold Ferrari, while Mercedes would have to sell 67 new cars. In the mass market segment, you’d need to sell 908 Fords and 928 Nissans to match.
Ferrari’s market capitalisation hovered around $30 billion but end of trading on Monday amidst a backdrop of reduced earnings forecast for 2020 as CEO Louis Camilleri told investors that while there have been “several cancellations” of car orders in the U.S. and Australia, “there are no red lights flashing in any geography”, while warning of continued weakness from its Formula One business and other segments.
IHS Markit Economics and Country Risk team issued a global economic forecast update indicating a 2020 slide into a global recession with real GDP growth down about 3%, and very sharp reduction in near-term demand/supply followed by a slow recovery.
Michelle Krebs, senior analyst for Cox Automotive told CNN that “The three things that most determine car sales are credit, employment and consumer confidence. All are working against car sales.” It appears that for the moment, the appetite for luxury consumption is still upbeat with high confidence among the affluent who are not as affected by credit availability and employment.
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