S&P Global Downgrades 3Q24 Production Estimates to -5.4% vs -5% prior, Morgan Stanley Says 'We expect the tone over 3Q24 results to be downbeat'

The analyst comments "S&P Global 3Q24 production estimates have again been downgraded, with global growth now seen at -5.4% vs -5.0% prior FY24 LVP estimates are also seen contracting 2.1% YoY in 2024 now, as the auto industry struggles for volume growth and with subdued new car demand. There is a substantial reduction in FY25/26 LVP volumes, which have been cut by c. 0.8m/1.0m units respectively in aggregate. LVP downgrades add to an already challenging backdrop for most Auto supplier stocks and explain recent share price weakness, we feel. We expect the tone over 3Q24 results to be downbeat, with FY25 supplier margin expansion plans more challenging following a fresh wave of OEM profit warnings. By region, the major drivers of this global LVP downgrade are North America and China. For North America, S&P Global note that over 1.3 million units have been cut from the 2024-2026 forecast horizon, which is attributed to (i) a reduction in the sales outlook of 0.7m units, (ii) requiring an inventory correction of similar magnitude over the next 12 months, and (iii) 20 launch delays and program cancellations/resourcing decisions, which account for a further 0.7m cut. In China, S&P note that China demand is ‘subdued’ despite recent waves of incentives and subsidies to drive new car demand and the scrappage of ICE vehicles. Ongoing price competition is creating a culture of delaying purchase decisions, with consumers waiting in anticipation of further discounting by OEMs. FY25/26 LVP estimates have been cut on the back of an expected payback from the expiry of scrapping policies, even if their FY24 impact has been less obvious."