The first conclusion of the Q1 financial results indicate that carmakers around the world have recorded the same amount of revenue, but made less profit so far in 2019. The figures confirm that it was not an easy quarter for most automakers, as many of them were exposed to the trade tensions between the USA and China, and the more challenging conditions in Europe. The published companies figures show that the net margin was severely affected by this more complex scenario.
Revenue totaled €448.6 billion
The 28 companies included in the study recorded revenues of €448.6 billion during the first three months of this year. The total was 0.1% higher than in Q1 2018, using the same exchange rates for both periods. It means that the industry sold €7.01 billion per working day, or €876 million per working hour. It was an increase on Q1 2018, when revenue equated to €6.90 billion per day.
Although revenue remained stable during the quarter, fewer vehicles were sold than during the same period in 2018. In total the 28 automakers sold 20.23 million vehicles (made up of passenger cars, light commercial vehicles and heavy trucks). This was 861,000 less than in Q1 2018 – a 4.1% decrease. The difference between the revenue made and the amount of vehicles sold means that despite the challenges, the automakers were able to increase the average prices of their vehicles.
According to the previous figures, the average price per unit sold increased from €21,245 in Q1 2018 to €22,168 during the first three months of 2019. The increasing revenue/price per unit is mostly explained by more SUVs.
Net margin was affected by more challenging conditions
There are many factors that can explain why automakers are making less profit this year. The most important is the deceleration in the Chinese market, where sales were down by 11%. It had been the top driver of growth during the last 15 years, however vehicle demand has suddenly started to decrease as a consequence of higher household debt and trade tensions with the USA. Meanwhile, growth has also cooled down in the USA and Europe, leaving very few markets for carmakers to grow and make money.
In Q1 2019, the net profit of the 26 companies (excluding Renault Groupe and PSA as neither release profit information by quarter) totaled €15.27 billion. Unlike revenue and sales volume, profits fell by 24% due to losses from key players like Honda, Suzuki and Tesla, and big drops in profits posted by Nissan, BMW Group, Subaru, JLR and FCA.
As a consequence, the net margin was severely affected during this period. It fell from 4.8% in Q1 2018 to 3.7% this past quarter. This means that the already small margin is getting even smaller. And conditions look set to worsen, with the upcoming CO2 targets in Europe and potential geopolitical tensions in Iran, North Korea and Venezuela.
As a matter of context, the automotive industry’s net margin is miles away from the 23.8% margin published by the software (Internet) industry, or the 16% recorded by the software (entertainment) industry. It is even lower than the troubled aerospace/defense industry, where the net margin is around 7.2%.
FCA improves the mix but earns less
Within this context, FCA underperformed in the industry during the quarter. The group posted the seventh largest revenue with €24.48 billion – 4 times more than Subaru, but 2.5 times less than Toyota. This was reflected in the overall market’s rankings broken down by sales, which was led by Toyota with 2.6 million units and rounded out by Aston Martin with 1,057 units.
FCA’s revenue fell by 5% mostly because its sales were down by 14%. However, Fiat Chrysler has actually increased the average price of its cars by 10%, jumping from €21,373 in Q1 2018 to €23,608 in the last quarter. The overall average price increase can largely be explained by the increasing sales of the new Ram 1500, which had an average retail price of $43,912 in the US during Q1 2019.
However, the deteriorating market conditions in Europe and Asia affected the profitability of the group. According to the group’s financial statement, the “non-repeat of parallel production of the previous generation Jeep Wrangler alongside the new model and transitioning to our new commercial strategy in EMEA” led to negative profitability results, which saw net profits fall by 47% to €508 million. Net margin decreased from 3.7% in Q1-18 to 2.1% in Q1-19. FCA’s European operations are responsible for a large part of the drop, with many plants resulting in wasted money, as sales fell and lower production levels did not match capacity.
FCA compared to its peers
The first thing to consider in the comparison is that FCA was the 9th largest group by net profits in Q1-19. It was outperformed by the usual suspects (VW Group, Toyota, Daimler, GM and Ford) but also surprisingly by the likes of BMW Group and Mitsubishi Motors. The net profits of FCA fell almost twice the overall drop (-24%).
In the net margin rankings, FCA’s position was even more worrying. The industry’s average margin was 3.7%, but FCA registered just 2.1%. Moreover, it was outperformed by 19 other automakers, while it was above the net margin of only 11 peers. The company came 16th out of 26 in the net profit/unit sold rankings, with 490 euros/unit.
Q1-19 Financial results for: Aston Martin, BMW Group, Daimler (trucks included), FCA, Ferrari, Ford, Foton Motors, GM, Great Wall Motor, Honda (all business included), Hyundai, JAC Motors, JLR, Kia, Mahindra, Mazda, Mitsubishi Motors, Nissan, PSA, Renault, Ssangyong, Subaru, Suzuki, Tata Motors, Tesla, Toyota, Volvo, VW Group. Renault & PSA do not disclose profit information.
The following car makers were not included in the analysis: BYD, SAIC Motor, BAIC Group, Geely Auto, Dongfeng, GAC Group, Chongqing Changan, Zotye and Chery.
Source: manufacturers, NYU