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This is the 16th note in our global auto series covering quarterly commentary from 30+ global automotive companies. As per most OEMs, supply constraints continued to ease during the quarter. Although wholesales for major OEMs declined sequentially owing to seasonality and workmen strikes, demand momentum remains healthy. Majority of the OEMs have maintained volume guidance for CY23. Inflationary pressure has softened and companies have guided for better margin outlook during the year. Global Tractor demand remains mixed with positive outlook for large agri equipment and inventory destocking for small agri equipment. Tyre companies indicated of sluggish demand environment and continued inventory destocking in replacement market in the near term. Overall, automakers are maintaining a positive mid-term outlook, focusing on executing healthy order book and move to electrification. We expect revenue/margins of Indian auto companies with higher global exposure like SAMIL / TTMT / SONACOMS to continue to improve/remain steady.

? Steady performance of global OEMs in 3QCY23: Easing supply challenges led to volume growth for Global OEMs on a YoY basis. Sequential decline during 3Q was owing to strikes and seasonality. In North America, volumes grew on YoY basis whereas change in emission norms in Brazil (LATAM) impacted some OEMs. Demand momentum remains healthy in EU as well. Slight demand moderation was witnessed in Asia and Global OEMs reported that intense competition in China led to sales decline. Outlook for China market remains neutral to positive. Automakers’ margins improved on YoY basis led by receding inflationary pressure, volume growth and better mix. While new orders/enquiries in Europe have seen some moderation, overall order book across players provides comfort. For instance, Renault’s order backlog stood at 2.5 months (vs 3.4 months in 2QCY23). Tyre volumes declined owing to high channel inventory in NA and EU. In the OHV segment, US large agri demand remains strong driven by higher crop prices, favourable farm income. However, US small agri demand has seen moderation owing to customers’ deferring purchases. Strong order backlog and infra spends support CE sales in NA whereas EU witnessed signs of slowdown.

? Supply constraints continued to ease; outlook maintained by OEMs/Ancs: Although global OEM wholesales were impacted QoQ during 3QCY23, supply constraints are broadly receding across the board and inventories are reaching normalized level. Overall, OEMs / auto component companies expect steady sales for light vehicles in CY23 and positive outlook for CY24 led by premium portfolio. Majority of them have maintained their volume guidance at the same time remaining cautious on macro-developments in developed markets.

? Inflation easing; margin improvement likely to continue: Just like Indian auto OEMs, global players witnessed easing on inflationary pressure (esp. RM). Margins improved during 3Q (on YoY basis). OEMs expect improvement in mix to continue led by traction in the premium portfolio. Global Auto Ancillary companies’ margins improved during 3Q owing to better mix, pricing via pass-through of inflationary costs to OEMs and relatively lower production volatility. However, margins for tyre companies declined owing to negative operating leverage / phasing out of high cost inventory. With the recent softening in commodity prices and energy inflation, global players have guided for improvement in operating margins. Price correction on EVs remains a monitorable.

? SAMIL / JLR / Sona BLW performance to improve going ahead: Basis commentary from global OEMs, customer order book, easing supply constraints and inflationary pressure is expected to drive steady performance for SAMIL / JLR going ahead. Inventory destocking (likely to continue for next quarter) will remain near-term headwind for Tyre companies. Slowdown in small ag. demand remains a challenge for Uniparts / SEL in the near-term. Sona Comstar performance is likely to be supported by order execution and robust new order wins

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