Vehicle production grew by 5.9% y/y (wda) in November to 150,182 units, easing from 8.5% y/y in October, according to figures of AutoSAP, the Czech car producer association. It was the second consecutive month with output growth, after three months with a decline, possibly due to the new emission testing procedures, which were introduced in September. Growth in November brought total output to just above 1.35mn units, higher by 2.8% y/y. While producers remain optimistic that last year’s record high vehicle production will be beaten once more, we expect that it will be by a narrow margin. Passenger car output rose by 2.9% y/y in January-November, adding up to almost 1.35mn units as well, being the primary driver of the automotive sector. Traditionally, Skoda’s output was stronger than the national average, growing by 4.5% y/y. Skoda has maintained a production share above 60% in recent years and there are no signs it will decline. Some competition could come from TPCA, after Toyota buys out Peugeot’s stake in the producer, though it will depend a lot on available capacity, as automotive producers are currently at 100% of their capacity, mostly due to lack of skilled labor. It is a reason why there was no new production of commercial vehicles in November, bringing output down by more than 50% y/y in January-November. Bus and motorcycle production improved as well, mostly due to stronger domestic demand.
The output recovery is due primarily to higher external orders, as domestic vehicle sales didn’t do that well, down by 13.7% y/y (wda) in November, a fifth consecutive decline and the second strongest in so many months. On the other hand, exports grew steadily, even though their growth eased to 7.3% y/y in November, down from 10.4% y/y in October. At any rate, vehicle exports rose by 3.3% y/y in January-November, making up for a 2.2% y/y decline in domestic sales, the figures being the same at total and passenger car level. Skoda again outperformed the sector, seeing exports grow by 5.3% y/y in January-November, which we see as favorable, given Skoda’s personnel issues and pressure from Volkswagen to shift some production out of the Czech Republic.
Overall, we may see another record year in the automotive sector, but we expect it to be its last. There is a lot of uncertainty looming in 2019, related to a scenario that may contain both a hard Brexit and US trade restrictions on European automotive exports. Czech-based producers do not export a lot of their output directly to the United States, but they are suppliers to countries that do, like Germany. Thus, second-wave effects could easily hit Czech producers next year, given that everyone now expects that US President Donald Trump will increase import tariffs on European-produced cars. The only good news out of this is that production capacity will be no longer at 100%, but the odds are that output will still decline next year.