Auto & Parts: CY22 YTD - New car sales update

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Senior Analyst
Date posted:
07 July 2022, 10:40 AM
Sectors Covered:
Diversified Financials, Professional Services

  • June-22 new vehicle sales (deliveries) of ~100k were down ~9.7% on the pcp and June-20 levels (~110k). CY22 YTD vehicle deliveries of ~538k are down 5.2% on the pcp; up 21.6% on CY20 (covid period) and down 3% on CY19.
  • Deliveries are run-rating at ~1.08m units for CY22, slightly up on CY21 levels. Current deliveries continue to reflect global supply constraints rather than demand.
  • Global OEM and new car dealer commentary has remained positive on demand, however cost pressures have increased and inevitable softness in US consumer demand has emerged. Production headwinds are expected to improve over CY22.
  • Within this note, we adjust forecasts across our Auto coverage, with broad downgrades driven primarily by an expectation of weakening consumer demand and relatively limited near-term vehicle supply improvement in Australia.

Watch

National new car sales: CY22 YTD down ~5% on pcp; up on the prior 6-mths

National new car sales (deliveries) were up 5.9% on May-22, however down ~9% on pcp and June-20. Deliveries of ~100k were down ~21.5% on the pre-Covid June average (~127k), given the typical end of financial year seasonality hasn’t been experienced in 2022 due to supply shortages.

YTD sales (~538K) are down 5.2% on the pcp, although showed improvement on the prior period (to Dec-21) of 11.5%. Versus the pcp, NSW and QLD were both down ~6.5% and VIC slipped 2.9%. The annual run-rate of ~1.08m deliveries continues to lag demand/orders (estimated to be ~1.3m pa currently), which reflects continued supply constraints.

YTD segment growth (vs pcp): Passenger -13.4%; SUV -3.7%; Light Commercial -3.2%; and Heavy Commercial +7.8%.

Industry commentary

Auto dealers (US and Australia) and OEM’s exited 1Q22 with continued demand strength and increased order books. We expect demand has remained solid through 2Q22, however initial signs of (inevitable) US consumer weakness have emerged.

In its June-22 release, CarMax (US used car retailer) stated that “the consumer is absolutely a little softer” due to general inflationary pressure and rising interest rates.

OEM production (supply) has remained constrained on the back of chip shortages and supply chain disruptions caused by China Covid restrictions and the Russia/Ukraine war (impacting parts supply).

Production impacts vary across the OEM’s, however US industry estimates and OEM production targets have largely been lowered for CY22 (Toyota recently downgraded its June production target by ~12% to 750k units).

Production is projected to improve through 2H CY22 on the expectation of improving semiconductor chip supply (eg, VW expects to deliver 5- 10% more vehicles in CY22 vs pcp, after the 1Q22 was down 22.8%).

Stock coverage comments

Upcoming reporting season: the outlook for consumer demand will be a key area of focus in the Aug-22 reporting season. We think comments will point to current demand remaining solid, however likely a more cautious outlook as interest rates and cost of living impacts flow through to consumer demand.

Strong order books for the Auto retailers will provide some near-term earnings visibility.

Broad EPS downgrades FY22-24: we have made EPS downgrades to APE, PWR, BAP and MTO (no change SIQ and NTD).

Downgrades are broadly driven by expectations of weakening consumer demand; and within Auto retail (APE, PWR) some impact from limited supply improvement YTD (changes detailed page 7/8).

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