China gets a cold and the whole world starts sneezing.
Did I say literally? (I should have called this Sars and Cars).
We just saw the stock markets lose their composure, but the stocks taking really big hits are the carmakers who have baked their profitability future into this largest growing car market.
Even Tesla took a hit of over 7% – but it has extra volatility as it’s often read as a tech stock.
Others are faring almost as bad. Volkswagen are down nearly 6%, GM down 5%, Fiat Chrysler and Daimler given up over 6%, and Hyundai over 7% down. Wouch.
This post isn’t about a global health pandemic. This is about what’s next as car makers get hit by the subsequent economic burn. VW for example realises 40% of its sales in China. Hyundai is already exposed through a huge Chinese supply chain. So we’re going to see more big factory plants and their workers sitting idle. Maybe this is the feather that pushes some of the minors and margins over into the great Horopito Motors/Smash Palace of the world.
The virus is attacking the auto industry not only from the supply side, but from the demand side as well, as showrooms are closed and potential buyers don’t dare to go out in public.
It’s a little chilly signal of what is to come, because many countries with major car manufacturing are also going to stop new internal combustion engine vehicles coming in.
The U.K. announced recently that it was banning new ones from 2035. Countries banning new ICE’s by 2030 are currently: Denmark, Iceland, Ireland, Israel, the Netherlands, Slovenia and Sweden. Those who are going for bans by 2040 are France, Singapore, and Sri Lanka. Considering that it will take Auckland’s City Rail Link from 2015 to 2025 to get 3.5 kms of underground track built, that’s a pretty fast timetable. Those countries with bold targets will have to stay bold if the oil price slumps as it can.
Now, who knows if they’ll stick to those dates. Sweden is going for a ban in just five years which sounds like a tight transition, shall we say. Will my fav Scandie Noir series shift from Volvo hybrids to full Polestars?
It would be a positively gutsy New Zealand or Australian government that proposed such a move, since we are so car reliant and our regional train services don’t really exist unless you’re a tourist with all the time in the world, and our cycling facilities are lethal as well as loathed. I won’t bother with our own current policy settings as they are weak and getting ever-fainter.
New Zealand in particular has a general population without the ability to buy new cars at all – subsidised or not. Let alone electric ones.
Germany and Japan have the biggest auto companies with the most to lose – and companies like BMW are very committed to sustaining the ICE for as long as they possibly can. In Germany maybe only VW will survive this set of policy changes.
But what the Corona virus is doing is have a sharemarket impact that is really hitting China-exposed auto stocks. That’s good practise, because just for once it looks like policy in a big set of influential countries (and cities!) is ahead of the market and consumer demand when it comes to auto-energy use and auto-pollution.
May as well start rehearsing with those corporate crisis handbooks for the next hit.