Coronavirus Wrecks Europe Auto Industry: Rough Road Ahead

The European auto industry is gradually grinding to a halt as various auto bigwigs are cutting production due to the coronavirus scare and faltering demand. The deadly virus, which originated in China, has now spread across nations. The number of confirmed cases has crossed 200,000 globally, killing over 8,000 people. Last week, WHO declared Europe as the epicenter of the outbreak, with the number of reported cases rising rapidly across the continent. With Italy being the worst hit European nation with reported cases topping 31,000, the country is under strict lockdown. Spain and France have also announced severe restrictions on travel and public life. With stricter guidelines to contain the spread of the virus, automakers are putting brakes on European production.

European Auto Market Already in Doldrums, Coronavirus Adds to Woes

The auto industry in Europe has been badly hit by effects of the deadly virus at a time when it was already grappling with sluggish production and demand in key markets, challenges related to rollout of EVs and detrimental effects of the trade wars.

European carmakers were already caught in the crossfire of U.S.-China trade tiff as the auto industry is complex with supply chains crossing borders. Brexit uncertainty and waning car demand in China amid economic slowdown had already taken a toll on Europe’s auto market. As it is, Europe is heading toward a material tightening of carbon emissions in 2020 and 2021. Switch to electro mobility will require high capital investments but the trade tussle has worsened the cash position of various European premium manufacturers.

As the industry fights tough CO₂ rules and consumers worry about a recession, automakers in Europe are having a tough time. Germany—which is Europe’s largest market—has been severely hit by lower exports of manufactured goods to a sluggish Chinese economy, whose prospects are still clouded. Even other European nations are far from strong and witnessed auto sales and business sentiment decline in 2019.

As if these concerns weren’t enough, the coronavirus outbreak has further ripped apart the auto industry of Europe. Mounting COVID-19 cases are likely to dent customer traffic in showrooms and cause supply chain disruptions. Amid the growing crisis, various manufacturers are temporarily scaling back European production.

Factory Closures Across Europe

Germany-based auto biggie Volkswagen (OTC:VWAGY) —which owns the Audi, Bentley, Bugatti, Ducati, Lamborghini, Porsche, Seat and Skoda brands— is also preparing to temporarily close all its European plants in the wake of the health hazard. Operations will be suspended at Pamplona plant in Spain, Setubal in Portugal and Bratislava in Slovakia before the end of this week. The company’s Spanish unit, Seat, halted all operations on Tuesday. Skoda has also reduced production at its Czech factories. Audi will stop production at its plant in Belgium, Germany, Hungary and Mexico for two-three weeks. Lamborghini is also shuttering operations in Italy until Mar 25. Ducati’s production, which has been halted since Mar 13, will remain until Mar 25.

Other Germany-based auto giants including Daimler AG (NYSE:F) and BMW AG (NYSE:F) are also suspending most of their production in Europe as the government scrambles to tackle the pandemic. Both Daimler and BMW carry a Zacks Rank #3 (Hold). You can see Zacks Investment Research

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Written By: Zacks Investment Research