The global car market faces seemingly endless challenges. Last year, global car companies were deeply mired in the whirlpool of “the spread of the new crown epidemic” and “shortage of parts.” This year, after the normalization of supply chains and car production, global car companies have encountered new challenges such as consumer demand being hit by high inflation and high interest rates, and intensified competition. However, thanks to factors such as sales growth, good pricing, and effective cost management, most international car companies achieved growth in the third quarter.
From Geshi Auto According to the data of 14 international car companies summarized by Geshi Auto, in the third quarter of this year, except for Mercedes-Benz, 13 car companies such as Volkswagen Group, Toyota, and Ford achieved revenue growth, with 9 car companies achieving both revenue and operating profit growth. Mercedes-Benz, General Motors, and Tesla operating profit declined from the same period last year, with Tesla’s operating profit declining the most. It is worth mentioning that among the 14 international car companies, only Mercedes-Benz’s revenue and operating profit declined from the same period last year. Third-quarter financial report: Japanese and Korean car companies are the “biggest winners.” Overall, the financial data of Japanese and Korean car companies in the third quarter is particularly impressive.
Thanks to factors such as increased sales and the depreciation of the yen, Toyota’s performance in the third quarter set a new record, with operating profit soaring by 155.6% year-on-year, exceeding analysts’ average expectations, becoming the most profitable international car company. Nissan’s operating profit also rose by over 120%; Honda’s operating profit increased by nearly one-third, although the growth rate was slightly inferior. Some analysts pointed out that if the yen continues to depreciate, it will help promote exports and increase the profits of overseas subsidiaries repatriated to the parent company for global companies such as Toyota, Honda, and Nissan.
Therefore, Japanese car companies are expected to continue to benefit from the depreciation of the yen in the fourth quarter. It is reported that Toyota, Honda, and Nissan have successively raised their performance expectations for the current fiscal year in the third-quarter financial report. For example, Toyota raised its operating profit expectation for the current fiscal year from 3 trillion yen to 4.5 trillion yen, and expects 1.18 trillion yen of the profit to come from the depreciation of the yen. While Japanese car companies benefited from the depreciation of the yen and the growth of sales in the US market, Ford, General Motors, and Stellantis were impacted by the strike by the United Auto Workers. On September 15th local time, the UAW officially launched a historic strike against the big three automakers in Detroit.
With General Motors and the UAW reaching a preliminary labor agreement on October 30th, the six-week coordinated strike action also officially came to an end. However, the UAW’s strike still had an impact on the financial performance of Detroit’s Big Three automakers. Ford said the strike caused a loss of 80,000 vehicles and restarting production would be a “huge task.” The strike also resulted in a $1.3 billion loss, exceeding its third-quarter net profit. General Motors said the strike had caused the company an $800 million loss, including a $200 million loss in the third quarter. Stellantis said the strike had less than a 750 million euro impact on its profitability, the least among the Detroit Big Three.
In addition to the losses mentioned above, due to the uncertainty caused by the strike, General Motors and Ford even withdrew their previous expectations for full-year operating performance in 2023. In addition, among the 14 international car companies, Tesla and Mercedes’ third-quarter performance is also worth noting, slightly lower compared to their previous levels. Tesla’s third-quarter revenue was lower than Wall Street analysts’ expectations, with operating profit falling 52% year-on-year to $1.764 billion, mainly due to factors such as large-scale price cuts, high interest rates, and upgrades to its global factories. It is worth mentioning that Tesla’s leading gross margin rate in the industry dropped from 18.2% in the second quarter to 17.9% in the third quarter, the lowest in over four years, lower than the Wall Street average expectation of 18.02%.
In comparison, Tesla’s gross margin rate in the same period last year was 25.1%. Tesla’s third-quarter car gross margin rate dropped from 18.1% in the second quarter to 16.3%. Some analysts have suggested that Tesla may need to further reduce prices to achieve its annual production targets. Wells Fargo analyst Colin Langan has also said that Tesla’s profit margin decline will continue into the fourth quarter and may fall below 15%. “We have considered the recent drop in lithium prices, but this may not be enough to offset the impact of the price cuts.” Among these 14 international car companies, Mercedes is the only one that has seen a decline in both revenue and operating profit.
Mercedes-Benz said that due to model updates and parts shortages, the company’s overall passenger car sales in the third quarter fell by 4% year-on-year, leading to a 3.8% year-on-year decline in its automotive business revenue in the third quarter. In addition, Mercedes said the market environment is “sluggish,” but Mercedes CFO Harald Wilhelm said, “We have already passed the worst period in terms of inflation and energy pricing.” However, Mercedes stated that rising inflation, foreign exchange, and supply chain-related costs had a negative impact on third-quarter profits, which was in line with the warning issued by Porsche in its third-quarter financial report, that the luxury goods industry is also not immune to macroeconomic difficulties. The dual challenges facing international car companies: intensified competition in the Chinese market and the transformation to electrification are “long and arduous.”
From the third-quarter financial reports, it is not difficult to see that international car companies are not only struggling in the Chinese market, but also facing the “long and arduous” challenge of electrification transformation. First, as the world’s largest car market, the competition in the Chinese car market is becoming increasingly fierce. On the one hand, Chinese electric car manufacturers such as BYD are increasingly rising, continuously eroding the market share of international car companies. On the other hand, Tesla has sparked a “price war,” further intensifying the competition. A Toyota executive even said, “The competitive environment is becoming more severe than expected.” As the world’s top two car manufacturers, Toyota and Volkswagen Group have both seen declines in sales and market share in China, but at the same time, their global sales have grown.
Toyota’s sales in China in the first three quarters fell by 4.2% year-on-year to about 1.385 million units, while global sales in the same period increased by 6.7% year-on-year. In the third quarter, Volkswagen Group delivered 2.3437 million cars worldwide, an increase of 7.4% year-on-year, but sales in China fell by 5.8% to about 837,200 units. As a leading global pure electric car manufacturer, Tesla is no longer as “comfortable” in the Chinese market as it used to be. According to data released by the China Passenger Car Association, Tesla China sold 64,285 domestically-made cars in July, a year-on-year increase of 128%, but a decrease of 31.38% from June.
This is also the lowest monthly wholesale sales volume for Tesla China so far this year. In September, Tesla China sold 74,073 domestically-made cars, a month-on-month decrease of 11.98% and a year-on-year decrease of 10.9%. Jesse Cohen, senior analyst at Investing.com, even pointed out, “Tesla’s worrying sales data in China indicates that the slowdown in demand for Tesla cars exceeds expectations, given the increasingly fierce competition from Chinese local electric car companies such as BYD, NIO, and XPeng.” However, some international car companies have launched a “counterattack” in China.
Among them, Volkswagen Group announced a partnership with XPeng Motors and SAIC Group to empower its two main brands – Volkswagen and Audi. Industry experts believe that Volkswagen Group misjudged the situation in the Chinese electric car market, and its pure electric models cannot compete with Chinese local competitors and Tesla. Therefore, Volkswagen Group now needs external or cooperative partners, and this cooperation undoubtedly injects vitality into its strategic development in the Chinese market. Nissan will continue to launch new models in the Chinese market and plans to export domestically-made cars to overseas markets, reversing its decline in the Chinese market.
Nissan will launch six locally-produced models for the Chinese market before 2026 and will start exporting cars from China to other overseas markets from 2025, with the initial goal of reaching an export volume of 100,000 units. Makoto Uchida, CEO of Nissan, said in an interview, “We have the Chinese local brand ‘Venucia’, and we see China as a unique core market. We are developing products tailored to Chinese users from scratch, which is one of the core aspects of Nissan’s design and development.” Uchida also said at a press conference after the third-quarter financial results meeting, “Despite the still challenging situation, we will work hard to get our Chinese business back on a growth trajectory.” Next, for many international car companies, the transition to electrification is still “long and difficult.”
Ford, General Motors, Volkswagen Group and other international car companies have previously realized that the speed at which they transition to electric vehicles will be slower than expected, and the cost will be higher. Recently, Ford, Volkswagen Group, and even industry leader Tesla have slowed down their investments or expectations related to electric vehicles. Ford recently announced plans to slow down spending on new electric vehicle capacity by about $12 billion. Ford gave the reason at the time: on one hand, many consumers in North America are no longer willing to pay higher prices for electric vehicles than for internal combustion or hybrid vehicles; on the other hand, although Ford and the entire automotive industry’s electric vehicle sales are growing, the growth rate has not reached Ford’s expectations. As the leader in the electric vehicle market, Tesla has also slowed down the construction of its Mexican factory.
Tesla CEO Musk also said at the third-quarter earnings call that he hopes to better understand the economic trends before “going all out” to build the Mexican factory. “The 2009 bankruptcies of General Motors and Chrysler left me traumatized. I don’t want to enter an uncertain state at the fastest speed.” Sam Fiorani, vice president of AutoForecast Solutions, responsible for global automotive forecasts, also pointed out: “Currently, the capital expenditure of car manufacturers in managing electric vehicles is more due to the fact that the market is not developing as quickly as expected.” He added that the decline in the price of electric vehicles and the increase in inventory indicate that “car manufacturers are not prepared for such fierce competition, and there are not enough buyers to absorb all these new products entering the market.”
However, from another perspective, the slowdown in new electric vehicle capacity spending by car companies may help their long-term development. On one hand, car companies can match production with demand, thereby avoiding large price reductions. On the other hand, car companies can use funds for production improvement plans to reduce costs. As General Motors CEO Mary Barra said, “We are slowing down the pace of electric vehicle production in North America to protect our pricing and adapt to the recent slowdown in demand growth. In addition, by implementing engineering efficiency and other improvements, we are lowering our production costs and increasing profits.”