Car manufacturers are making record profits

Car manufacturers are making record profits

The car companies are defying the chip crisis, supply chain interruptions and the war in Ukraine and are reporting higher profits from quarter to quarter: The 16 largest car companies in the world made an operating profit of a total of 34.1 billion euros in the first quarter - 19 percent more than in the same period last year and the highest profit ever generated in a first quarter.

Despite a sharp decline in sales of eleven percent, sales rose by seven percent. Companies in China recorded the largest declines in sales, where sales fell by 17 percent. In the USA it fell by 16 percent and in Western Europe by twelve percent. The leader in sales was Volkswagen with sales of 62.7 billion euros, closely followed by Toyota with 62.2 billion euros.

The highest profits were recorded by Volkswagen (8.3 billion euros), Mercedes-Benz (5.2 billion euros) and Toyota (3.6 billion euros). In terms of profit margins, however, Tesla was once again ahead: the Californian electric car manufacturer achieved a margin of 19.2 percent, putting it ahead of Mercedes-Benz (15.0%), Volkswagen (13.3%) and BMW (10.9%).

These are the results of an analysis of the financial indicators of the 16 largest car companies in the world, which the auditing and consulting company EY prepares on a quarterly basis.

“The excellent figures in the first quarter should not distract from the extremely tense situation in the automotive industry,” explains Axel Preiss, Head of Advanced Manufacturing & Mobility at EY. "In fact, the supply chains are currently a major threat to the industry. The good sales and profit development is primarily due to the high demand, which means that manufacturers hardly have to offer any price discounts at the moment." Providers in the premium segment in particular benefit from this exceptional situation, says Preiss: “High-priced new cars are selling well, and premium providers are currently making dream margins.”

However, not all manufacturers are recording increased profitability: Toyota's margin shrank from 9.0 to 5.7 percent compared to the same period last year, while Ford recorded a decline from 8.5 to 5.2 percent. A number of companies are still struggling with low margins: half of the companies examined reported a margin of less than six percent for the first quarter. Preiss says: "Overall, the car companies made more profit in the first quarter than ever before. However, half of the total profit goes to the top three earners - there are some manufacturers who were completely missed by the profit boom."

The big unknown at the moment is further developments in the important Chinese market, which accounted for 39 percent of German car companies' sales in the first quarter. Preiss views developments there with concern: "The strict lockdown measures in China are putting massive pressure on new car sales. There is currently no easing in sight, which is why there is a risk of further declines in sales on the Chinese market in the coming months. The limited local production is also problematic for European companies - this also has consequences." The restrictions in China are therefore likely to be felt worldwide, is how Preiss assesses the situation.

Manufacturers' hopes are currently primarily based on a better supply of semiconductors. "As soon as the situation with chips improves, car sales will also increase again. The order books are well filled," says Preiss. However, according to Preiss, the massive increase in energy and raw material costs will also have an impact on the companies' balance sheets. Further profit growth is therefore unlikely - also given the difficult situation in China.

Preiss expects little to change in the focus on premium vehicles for the time being, with the allocation of resources continuing to shift from combustion engines to electrified vehicles: "Electric cars are becoming increasingly profitable and many new, attractive electric cars are coming onto the market, especially in higher price ranges. Demand and willingness to pay are high." The premium segment is also likely to suffer the least from the expected further economic slowdown, Preiss expects: "The economic forecasts are currently anything but rosy. If inflation rises, purchasing power falls. There is also great uncertainty about further developments in energy supplies, for example. Car manufacturers should therefore prepare for stormy times."