Morgan Stanley
  • Research
  • Nov 19, 2019

Peak Car–or Just Bumps in the Road?

The auto industry is critically important for the global economy, but it has seen a disruptive slide: global registrations, demand and production have slumped. The decline in passenger car demand seems to be persistent and independent of trade tariffs.

Autos: Critical to manufacturing and employment

Any slowdown in the industry is likely to have significant global economic ramifications. Automobiles are a key part of the manufacturing sector in a number of countries. In 2017, the global industry directly employed roughly eight million people, and indirect employment, such as automobile components, is estimated to be between 4.3 times in the U.S., and 6.2 times in Japan, that of direct employment.1

DISPLAY 1: A global industry


Source: OICA, Datastream, data as of 31 December 2018

On the skids: Global car demand

China, which makes up almost 30% of global passenger car demand, saw vehicle registrations contract by over 4% year-over-year (YoY) in 2018, the first decline since the 1990s.2 Given weakening Chinese economic growth, elevated uncertainty and softening employment growth, it is not surprising that fewer consumers are purchasing a new car. The EU, which employs nearly 14 million people in the auto sector, felt a similar drop.    

DISPLAY 2: Caution—steep descent in demand


Source: Bloomberg, data as of 30 July 2019

The production of global passenger cars has also dropped, falling 3.2% in 2018—the first contraction since the financial crisis in 2008.3 This is especially striking in China and Germany, where production is down 15% YoY in both economies. Both domestic demand and exports are suffering and the trend does not appear to be linked to a recession or the trade war between the U.S. and China.

DISPLAY 3: Car production is also falling


Source: Verband der Automobilindustrie, Japan Auto Dealers/Manufacturers Association/Haver Analytics, CAAM

Applying the brakes: Global emissions standards

Much of this global decline seems to be driven by increasingly strict governmental policies regulating the internal combustion engine (ICE).

The EU, for example, has set targets to cut passenger car CO2 emissions from 130g/km to 95g/km by 2030. If an auto manufacturer’s fleet has average CO2 emissions exceeding its yearly target, for each car registered they are fined €95 per g/km of excess emissions.4

Some countries have gone as far as instituting 100% zero-emission vehicle targets.5 Norway has been the most aggressive with a planned ban on ICE-sales by 2025, and six countries are expected to follow suit by 2030.6

All major car manufacturers have made clear commitments towards electric vehicles (EVs) as a way of addressing this new policy landscape. However, debilitating up-front costs are slowing the transition. 

Path forward will be a slow U-turn

In the longer term, we expect demand to pick up. Disruptive trends like car sharing have made car ownership somewhat less important, but they have not yet upset the norms. The industry’s rough downhill road over the past 18 months is expected to eventually evolve into an upward growth trajectory.

The employment repercussions are a different story. EV manufacturing tends to be automated, requiring significantly fewer workers and the assembly-line skills needed for building ICE cars are not readily transferable to producing EVs. Auto manufacturers are likely to adapt, but it is smaller companies and employees in the ICE vehicle supply chain which may suffer, given EVs require fewer parts. Longer term, economic growth will result in employment growth, but the magnitude of this employment growth is unclear.    

Regional road map

Looking at the global regions, we see near-term challenges:

  • China: With tentative attempts to re-stimulate their auto industry, China is likely to stabilise somewhat, but not enough to see a significant near-term recovery.

  • Europe: European performance depends largely on Germany, but despite a budget surplus and growing concerns, they do not appear in a rush to stimulate until growth deteriorates further. Combined with Brexit acting as a backup brake, Europe seems unlikely to see a broad-based recovery in sales and production in the near term.

  • U.S.: We have not seen any tangible plans related to the auto industry, though there is some potential as we get closer to the 2020 election.

  • Japan: As one of the leaders in hybrids and energy-efficient vehicles, Japan’s auto industry faces the fewest near-term challenges.

Stay off the highway, for now

The auto industry is going through a disruptive pivot. Despite hurdles, countries aiming for zero emissions by 2025 will require significant investments quite soon. Morgan Stanley expects to start seeing these investments and their effects kick in within the next two years. The trip to growth is likely to be a long one. In the short run—and until prices drop further—investors should be cautious with investing in the auto industry.


1 Auto industry employment figures sourced for countries and regions as follows: U.S. – Bureau of Labor Statistics, EU – European Automobile Manufacturers Association, Japan – Japan Automobile Manufacturers Association.

2 International Organization for Vehicle Manufacturers, OICA, Datastream, data as of 31 December 2018.

3 International Organization for Vehicle Manufacturers (OICA).

4 European Commission. Accessed 27 September 2019. https: // transport/vehicles/cars_en

5 Global EV Outlook 2019. Denmark, Iceland, Ireland, Israel, Netherlands and Slovenia are all targeting a ban on ICE vehicle sales or 100% zero-emissions vehicle sales.

6 Denmark, Iceland, Ireland, Israel, the Netherlands and Slovenia.


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