CRU Auto Outlook: Cost pressures rise in auto industry

Key takeaways

• Global production: Growth is set to be flat this year, with recent downgrades driven mainly by Europe, where expected demand-side headwinds, alongside ongoing cost, regulatory, and competitive pressures, have softened the outlook. Chinese automotive production was also revised down modestly on weaker domestic demand, reflecting policy and structural changes. While North America was broadly unchanged, it remains exposed to downside risk from weaker domestic demand.
• EV demand: While we expect a rebound, EV growth in China has been weak so far this year, held back by tighter incentives and regulations, as well as holiday-related timing distortions. North American EV sales appear to have bottomed out, with US BEV sales still weak, although there are more positive signs in Canada and Mexico, but we expect regional EV sales to contract this year. In contrast, EV sales in Europe remain strong, supported by increased competition, new model launches, and regulatory standards, leading to a modest upgrade to the EV outlook.
• Key risks: Multiple risks continue to cloud the automotive outlook, including semiconductor shortages, tariff uncertainty, weaker demand, policy changes, geopolitical disruption, the war in Iran, supply-chain shocks, protectionism, cost pressures, and intensifying competition. Overall, risks to production remain skewed to the downside, led by softer domestic demand in China and a subdued outlook in North America and Europe, and the ongoing conflict in the Middle East. In addition, rising material prices remain a concern.