UniCredit Bank Austria industry report on the automotive industry:
The automotive industry is slowly picking up pace
- Austria's automotive industry can expect a stronger increase in production in 2021, but cannot completely offset the 16.1% decline in production seen in 2020
- The sector is not expected to reach pre-crisis levels until 2022
- The Austrian automotive industry tackled the 2020 crisis more successfully than the European competition
- Austria's automotive industry boasts outstanding innovation and competitiveness and benefits from its close relationship with the German premium segment
Austria's automotive industry was one of Europe's fastest-growing sectors in recent years. As the latest UniCredit Bank Austria industry report on the automotive industry shows, the crisis-related production losses of 16.1% in 2020 remained below the losses seen amongst most major European vehicle-production countries. "We expect the automotive industry to grow even more this year and to be able to recover the losses from 2020 by 2022. What's more, the sector's competitive strength means that it is well prepared for the coming years, which will pose enormous structural challenges for the automotive industry", says UniCredit Bank Austria Economist Günter Wolf.
Production of finished vehicles is a key growth driver for the domestic automotive industry
A loss of momentum in the international automotive economy can be traced back to 2017. Since then, its effects have been seen in all major European car markets and above all in China, the world's largest market. In the EU, production output in the automotive industry contracted by 6% in 2019 - and by 11% in Germany - while in Austria the sector recorded growth of 5% (and sales growth of 6.4% to EUR 19.1 billion).
In 2019, there were 5% fewer cars built in EU member states and 9% fewer cars built in Germany, which led to a 2.6% decline in exports of Austrian vehicle engines and vehicle parts to the EU (down to EUR 7.1 billion) and a 5.1% decline in these exports to Germany (down to EUR 4.7 billion). Worldwide exports of vehicle engines and vehicle parts from Austria have risen by 0.5% to EUR 9.5 billion. Deliveries of vehicle engines to the USA have largely contributed to the increase in exports outside of the EU.
In 2019, the Austrian sector results were primarily saved by very strong finished vehicle sales figures. Car production rose for the third year in a row, increasing by 10% to 158,000 vehicles in 2019, whilst lorry production rose by 9% to 21,000 vehicles. In terms of value, exports of finished cars and lorries increased by 13% to EUR 10.2 billion. These exports have enabled the domestic automotive industry to avoid the slowdown in car production seen across the EU (the target of three-quarters of car supplier exports) and also to increase its growth advantage over EU competition.
Recovery in industry's economy in 2021 will only partially offset losses from 2020
The economic downturn in 2020, which has affected car suppliers and manufacturers of finished vehicles alike, has left a significant mark on the results of the domestic automotive industry. Both areas recorded an export decline of more than 20% to all major export regions. Preliminary data indicates a 16.1% decline in output across the sector. Austria's automotive industry has, however, been significantly more successful in tackling the 2020 crisis by European comparison: Production in the sector fell by an average of 22% in the EU and by 25% in Germany, the largest country by vehicle production.
Recovery in car production was already under way by Q4 2020. With companies becoming more confident on balance in their production expectations in recent months, the upturn in the sector should continue. At an EU level, the automotive industry was even more optimistic according to the recent economic surveys from January and February 2021, which confirmed the stable upward trend.
At this time, Austria's automotive industry is expected to recover from the crisis at about the same rate as vehicle production in Europe. According to estimates from LMC Automotive, the 24% decline in car production in Western Europe and the 18% decline in Eastern Europe can be largely offset in 2021. The domestic sector can expect stronger demand from across Europe but above all from the German automotive industry, which is the largest buyer of Austrian-made vehicle supplies.
Technological advancement secures Austria's place as a location for automotive production
The automotive industry in Austria and Germany has so far been able to offset its cost-related competitive disadvantages with strong productivity gains. Even in comparison with the largest Eastern European production locations, where staff costs in the sector are still at least two-thirds lower than in Austria and Germany, the gap between productivity-adjusted labour costs is shrinking to a minimal level.
Producers of automotive parts and accessories in Austria achieved particularly high productivity gains. In this area, value-added per employee in Austria has increased by 50% since 2008, and in Germany has risen by 31%. It is likely that the advance in productivity is primarily due to the high level of spending on innovation. According to the latest EU Community Innovation Survey, 87% of all vehicle production companies in Austria were "innovation-active", which is a remarkable result, not least because the number of innovators is higher, in relative terms, than in the German automotive industry. The innovative strength of the companies is again based on high levels of ongoing research and development expenditure, which, at 4.2% of the sector's turnover in Austria, is significantly higher than every other, larger European vehicle production country. Only the German automotive industry invests more than 5% of its sales in R&D. This can be attributed to the presence of major car manufacturers and three of the five largest automotive suppliers in the world; for instance, around half of all patents filed worldwide in the electromobility and autonomous driving sectors are filed by German companies.
The pandemic accelerated sales of electric cars
In 2020, electric and plug-in hybrid vehicles, or electrically chargeable vehicles (ECVs), gained market share in most European countries. High subsidies and the increasing number of cheaper vehicle models have driven sales. Whilst the car market as a whole shrank by around 24%, the number of new ECVs registered in the EU rose by 170% and in Austria by 107%. On average, just 0.4% of cars in the EU are ECVs and in Austria this is slightly higher at 1%. In 2021 and beyond, however, this proportion is set to increase at a rapid pace - in January, new registrations of ECVs in Austria rose by a further 90%, whereas newly registered petrol and diesel cars fell by 38%.
In 2021, the car industry will, for the first time, have to reduce the CO2 emissions of its new car fleets registered in the EU or be subject to penalties. It is expected that the majority of manufacturers will be able to avoid penalties for 2020 due to the sharp reduction in CO2 emissions from their new car fleets as a result of the COVID-19 crisis and due to a number of exceptions. Whether the 2021 target will be achieved remains to be seen. As indicated by the national emission targets, which are already defined in some cases, it can be expected that there will only be more plug-in hybrids or full hybrids on EU roads by 2030 alongside fully electric vehicles, with fewer exceptions available. Structural change will cost many jobs in vehicle production and in the automotive supply industry over the coming years. This is due in part to electric motors being less complex but also to lower demand for the spare parts for, and maintenance of, battery-powered vehicles.
Furthermore, Western Europe, though the target of two-thirds of Austrian supplier exports, will in the long term continue to lag behind the rest of the world as a production location for the automotive industry. According to a recent assessment by the German Association of the Automobile Industry, the German automotive industry is better equipped for the future than Germany as an automotive location due to its strong presence in Eastern Europe and the Far East. "Austria's automotive supplier industry should be able to reap long-term benefits from the close relationship with the German premium manufacturers in particular and protect its solid position as an internationally competitive location. However, the sector's scope for expansion is becoming narrower", concludes Wolf.
Enquiries:
UniCredit Bank Austria Economics & Market Analysis Austria
Günter Wolf, Tel.: +43 (0)5 05 05-41954;
Email: guenter.wolf@unicreditgroup.at