Sluggish sales and disappointing levels of demand for electric cars have thrown a spanner in the works of global car makers. But the growth engine has merely stalled. Matthew Partridge reports
Over the past few months, the car industry has “never been far away from the headlines”, says Jon Wallace of the Jupiter Green Investment Trust. The seemingly unstoppable rise of electric cars appears to have hit a speed bump, and governments have rapidly reversed ambitious targets to ban sales of new petrol-powered cars by the end of the decade. Meanwhile, the threat of competition from Chinese carmakers has prompted US president Joe Biden to hike tariffs on electric vehicles from the country. Are these problems just a bump in a road on the way to a new future – or something more serious?
Opportunities in emerging markets
Probably the most immediate challenge facing the industry is the fear that growth in car sales is likely be much slower in 2024 than it was last year, says Ben Laidler of asset manager eToro. But this was always “inevitable” given that global car sales grew 10% in 2023 as consumers returned to the market after postponing purchases due to the supply-chain disruptions of the past few years. Indeed, the absolute volume of cars sold around the world is still set to expand by around 3%, with any short- or-medium-term weakness in developed markets compensated for by stronger growth in emerging markets, “which are set to become the main driver of growth in the future”.
Adrian Lewis, the chief financial officer of Inchcape, has direct experience of the growth in demand in emerging markets as his company works with major carmakers to sell their products to 40 markets in developing and mid-sized economies, outside the major markets of the US, Europe, UK and China. The larger markets, which represent around 20% of the world’s population, currently account for 80% of the world’s vehicle sales, but Lewis thinks that this is “starting to shift” – sales in emerging markets are “structurally growing faster than the global average”, with organic growth rates of around 6% a year.
Lewis thinks this sales growth is due to two factors. The first is that the national income of emerging markets is growing faster than that of the world economy. The second is that a much smaller percentage of the population in most emerging markets owns a car than is the case in developed countries, “which gives much bigger headroom for future growth”. Indeed, in some markets, fewer than around 1
