While inventory data is not publicly available in Europe, recent events continue to highlight that inventory movements are a critical component to understand the likely evolution to build volumes.
European inventories are now showing new strains, with destocking in Q1 of circa -200,000 units, followed by a sharp -700,000 in Q2. We expect this to have continued into Q3 (-380,000), before starting to turn around in Q4 – although there is still uncertainty on this to some extent.
Indeed, the destocking we project over Q1-3 exceeds that suffered by the sector in Q2 2020: 1.270 million versus 1.020 million. But a devastating collapse similar to that suffered in the wake of the Lehman Brothers crash (1.540 million) should not be ruled out, and this merely highlights the scale of the crisis currently being felt by the sector.
European OEMs have been forced to trim build significantly, while incoming orders have slowed as both have been impacted by the chip shortage. Oddly enough, European days’ supply is looking heathy because we are in an unusual position where both the flow of build and the flow of orders are being impacted by what might be considered a unique set of circumstances.
If we were to assess the market’s potential demand, then, clearly, the industry would be supply-constrained across the board. Rather than 60 days’ supply, with constrained demand, we would probably be looking at circa 40 days’ supply, with reference to ‘real’ underlying demand.
However, some OEMs have been more severely impacted than others, as illustrated in the Inventory Assessment table below.
European inventories crisis is being felt across the board.
This table should be studied with an eye on the benchmark. At a glance, we can see that Ford and Tata Groups were operating well below their benchmarks in Q2. For Q3, meanwhile, Daimler and RNM joined the ‘critical list’.
What is clear, however, is that this inventory crisis is being felt right across the board.
With the notable exception of Ford, whose days’ supply holdings collapsed by 25% in Q2, all the OEMs show slippage in days’ supply holdings in Q3 and are now mostly operating below the level of inventories that they would ideally like to hold.