UK Car Manufacturing Show Signs of Recovery, Aston Martin And Rolls-Royce In Focus

Summary

• In July, the automobile manufacturing of the United Kingdom surged; however, it remained below its 12 months prior level
• As per the SMMT report, the UK car manufacturing fell 20.8 per cent in July with 85,696 units made, the production for UK buyers also decline by 37.1 per cent
• For automobile players in the United Kingdom, Covid-19 developed at a difficult time and has led to a swift and severe impact on the globally integrated automotive industry.

During the underlying crisis of Covid-19 and worldwide lockdowns, business pioneers made all efforts to save their organisations, secure their employees, and keep supply chains moving. Presently, while the world is still reckoning with the human and economic toll of the coronavirus, it is attempting to outline a way to the next normal despite the many unknowns ahead. Never in present day times have so many industries confronted such vulnerability.

For automobile players in the United Kingdom, Covid-19 developed at a difficult time and has led to a swift and severe impact on the globally integrated automotive industry. Disruption in Chinese parts exports, large-scale manufacturing interruptions across Europe, and the closure of assembly plants in the United States placed intense pressure on this sector, which was already coping with a downshift in global demand.

Post January 2020, UK’s international trading relationships were in flux as the terms, and tariffs of Brexit were being re-defined. The industry was disrupted by new advancements, including automation, electrification, connectivity, and artificial intelligence. In the meantime, developing ecological concerns, changing client inclinations, and the development of shared portability were modifying long-standing demand patterns.

In July, the automobile manufacturing industry of the United Kingdom surged, however, it remained effectively beneath final 12 months prior level after manufacturing virtually fully stopped in April due to coronavirus lockdown.

Of late, the sector is strongly coming back to normalcy, following the rebound in different elements of the financial system such as retail gross sales, which at the moment are larger than before the pandemic levels. However, the Society of Motor Manufacturers and Traders warned that uncertainty about Britain’s future buying and selling preparations with the European Union risked derailing the restoration.

SMMT reports a decline of 20.8 per cent in car manufacturing output for the UK

According to statistical figures published by the Society of Motor Manufacturers and Traders (SMMT) on 27 August 2020, the car manufacturing output for the UK declined by 20.8 per cent in July as 85,696 units were produced. The month of July saw the ramp-up of production with the lockdown easing in place. However, the output remained subdued due to economic uncertainty and the prevailing social distancing measures.

As all the UK car showrooms were able to open through July, Production for the UK market improved compared with May and June. However, it still plunged by a dramatic 37.1 per cent year-on-year, with just 13,434 units leaving factory gates. There was also a decline in the manufacturing for export, but by a slightly less substantial by 16.8 per cent to total 72,262 units. Exports took into consideration more than eight out of 10 vehicles built in July with buyers in overseas markets, including the EU, China and the US, attracted to the latest cutting-edge UK-built models.

In the year to date, the pandemic has affected the key markets, including the UK, reflecting an overall production down by 39.7 per cent, representing a year-on-year production loss of 307,707 cars. Overseas shipments in the first seven months plunged by 38.5 per cent to 381,273 units, with production for the UK market falling by 44.5 per cent to 85,780.

(Data Source: Society of Motor Manufacturers and Traders)

UK’s Automotive Sector

The automotive industry of the UK plays an important part in contributing to the economy with the turnover of more than £82 billion and adding £18.6 billion value to it. SMMT data states that the automobile industry of the country comprises of 14.4 per cent of overall UK export of goods, worth £44 bn. The nation exports 8 out of 10 cars produced in the country overseas to 160 different other countries across the globe. There is a workforce of 168k people employed directly in the sector and over 823k across the wider automotive industry. The industry also invests a huge amount of £3.75 billion each year R&D for the automotive. In the passing year (2019) the country witnessed manufacturing of over 1.3 million cars, 78,270 commercial vehicles, and 2.5 million engines.

Let’s discuss the stock performance of two of the listed automobile companies on the London Stock Exchange:

Aston Martin Lagonda Global Holdings PLC (LON:AML) stock was trading at GBX 55.70 on 28 August 2020, at 8:25 AM, down by 0.35 per cent from its previous close of GBX 55.90. The 52-week low/high price was GBX 30.70/630.00. It was having a market capitalisation (Mcap) of £1,019.62 million. The volume traded at the time of reporting was 675,195. The company recorded a negative return on price, which was 89.79 per cent on a YTD (Year to Date) basis.

Rolls-Royce Holdings PLC (LON: RR.) stock was trading at GBX 241.00 on 28 August 2020, at 8:30 AM, down by 3.60 per cent from its previous close of GBX 250.00. The 52-week low/high price was GBX 230.40/832.00. It was having a market capitalisation (Mcap) of £4,827.49 million. The volume traded at the time of reporting was 1,022,436. The company recorded a negative return on price, which was 63.30 per cent on a YTD (Year to Date) basis.

Conclusion

The year 2020 has thrown unprecedented challenges to the manufacturing industry, forcing manufacturers to speed-up their plans for factory automation and re-aligning human resources to drive growth. In fact, economic malaise offers an opportunity for manufacturers to chart a new course of action. At the same time, companies and asset-intensive businesses are looking at operating risks from top to bottom.