06 May 2020 by jbchevrel
German carmakers widened back after some strength yesterday, along with the broader market. BMW and VW still trade with a >1 beta to Main. German carmakers are faced with a historical demand shock that may be coupled with supply-chain headwinds. VW said the cost of some key car parts rose COVID-to-date. Parts makers are operating at a fraction of their full capacities and are passing on their increased costs to OEMs. If we continue to see lower volumes in auto parts, those will keep bein more expensive. As we can see over the past week or so, parts makers have outperformed OEMs. That negative effect for OEMs. could be partially offset by cheaper raw materials/commodities. But surely BMW, VW and co won’t pass extra costs onto customers, just because there are none. For ref, EU passenger cars sales were -55% in March and leading numbers for April are closer to -95%. Another potential issue, from the supply side, is that some small parts makers might not survive this crisis, given some have low liquidity, and that could trouble the supply chains of big carmakers. Yesterday German carmakers met Merkel in Berlin to discuss a stimulus package where car drivers would be paid thousands of euros to swap their old cars for newer ones. There had been a similar measure after 08, it had cost €5B to Germany back then. 2020 was meant to be the take-off year for electric cars for VW. The environmental argument adds to the economic one (for ref, the car industry employs directly and indirectly ~3M people in Germany). VW may still go forward with the ID3 in a few months. The 1st mass market battery car from VW. There is already a €6k state subsidy for such cars, the ID3 will cost around €30k.