UK to Announce New Car Scrappage Scheme in Favour of New Technology Vehicles

Summary

  • 2020 new car scrappage scheme can soon to be launched
  • People are encouraged to buy a mild hybrid or electric vehicles and are going to be rewarded for that
  • New technology vehicles have stable demand compared to the conventional one

After a gap of 11 years, the British government is reportedly set to roll out a new scrappage scheme for cars, as an initiative to boost the economy in the wake of the coronavirus pandemic. In 2009, the car scrappage scheme was introduced to encourage people to switch towards cleaner fuel emission standards. Nearly 400,000 new cars were brought under the 2009 car scrappage scheme.

According to some reports, the new car scrappage scheme 2020 is likely to be rolled out on 6th July 2020, where the car buyers would be offered discounts of up to £6,000 on buying new hybrid and electric cars and scrapping their conventional liquid-fuelled cars. These schemes would not only boost the economy but also set an example for other sectors to roll out environment-friendly schemes in the post-Covid era.

However, the SMMT (Society of Motor Manufacturers and Traders) has insisted on including the conventional power terrains in the new scheme, as per some reports. The UK’s automotive body wants the scheme to benefit the overall industry and not just a specific segment. Governments around the globe have been pushing the automotive industry towards zero carbon emission targets year on year. If conventional cars are included in this proposed scheme, this would be detrimental for achieving these targets.

In the United Kingdom, the new car registrations were down by nearly 98 per cent in April, as per SMMT data. On the flip side, the battery electric vehicle (BEV) sales were down by just 10 per cent. The battered car industry in the UK seems to be on the path to recovery, as few car makers have resumed operations and store openings are prioritised in the lockdown easing plans.

All of us have been enjoying better air quality during the lockdown. Ditching conventional engines and making a switch to green technologies would help in sustaining the improvement in the air quality and would be our contribution to the mother nature. As per some unconfirmed reports in the media, the car enthusiasts could get discounts up to £6,000 on buying a new hybrid or an electric car. Let us discuss a few businesses which are likely to be impacted following the launch of the new car scrappage scheme.

  • Aston Martin Lagonda Global Holdings Plc (LON: AML)

Aston Martin Lagonda Global Holdings Plc is a Gaydon, the United Kingdom based leading luxury brand focused on the design, engineering, and manufacturing of luxury sports cars. It was formed post-merger of Aston Martin and Lagonda. Both brands have a history of over 100 years. AML has a long tradition of extraordinary design, manufacturing and engineering of luxury sedans and sports cars. The company is creating and exporting cars in more than 50 countries around the world. The company is having four regional offices located in the Asia Pacific, China, Europe, and the Americas. On 10th June 2020, at the time of writing, GMT 13:04 PM, AML shares were trading at GBX 76.40, down by 3.04% against the previous day closing price.

The company assumes that trading would remain challenging for the rest of the current year and is evaluating methods to take further actions on preserving cash and reducing operating costs. The Group is not able to provide a clear view of the full-year outlook, due to the uncertainties surrounding the duration and impact of the COVID-19 pandemic in the economy. Due to the prevalent uncertainties, the Group continues to review all refinancing options to ensure liquidity.

In its the first-quarter results released on 13th May 2020, the company’s revenue was down by 60 per cent to GBP 79 million as compared with the corresponding period of the last year, driven by COVID-19 impacted dealer demand, lower average selling price (ASP), lower core retail sales, and a decrease in core wholesales.

Operating loss of the company for the current quarter increased to GBP 76.7 million in the first quarter of 2020 against the last year same period, due to the revenue decline. The company’s closing cash balance was GBP 172 million by the end of the first quarter of 2020. The company has successfully completed a GBP 536 million equity capital raise. The company might face liquidity and interest rate risks, which can affect the operations in the short term.

COVID-19 outbreak has posed significant challenges for businesses, given its widespread adverse global economic, social, and operational impact.

  • TI Fluid Systems Plc (LON: TIFS)

TI Fluid Systems Plc is an Oxford, United Kingdom based Automobile parts manufacturing company with expertise in the production of engineered fluid storage as well as carrying and delivery systems. In terms of Fluid Carrying Systems, the company’s three major products include Brake and Fuel Lines as well as Bundles which meet the complex assembly, design and performance challenges of the automotive space, Thermal Products, which are produced with the purpose of light-weight and cost-effective performance as well as Powertrain products, to improve fuel economy and at the same time reduce carbon emissions. In terms of Fuel tank delivery systems, the company again has three core products which are Fuel tank products such as fuel tank systems for all Gas, Diesel, petrol and Hybrid utilisations, products such as fuel pumps as a part of the Fuel delivery products as well as some aftermarket products. On 10th June 2020, at the time of writing, GMT 13:08 PM, TIFS shares were trading at GBX 188.20, down by 0.84% against the previous day closing price.

As per the company, the Group is well-positioned to recover as and when vehicle production volumes begin to increase, given the Group's efficient global footprint and strong customer relationships. The company would be able to see through the prevalent uncertain environment by leveraging upon its highly experienced management team, which focuses on cost optimisation and operational flexibility.

The Group is constantly evaluating methods to preserve cash and reduce operating costs. Despite a significant plunge in global light vehicle production environment due to the impact of the COVID-19 pandemic, the Group achieved revenue of €717.3 million in the first quarter of 2020.

The global light vehicle production volume was down by 23 per cent in the first quarter of 2020 due to the unprecedented suspension of economic activity caused by the novel coronavirus. The company had a strong financial position and liquidity in 2019. The Group announced a final dividend of 5.20 pence per share for FY19.

The company drew €146 million from its approximate €192 million revolving credit facilities as a precautionary measure to ensure sufficient cash availability in the event of a prolonged reduction in global light vehicle production in response to the unprecedented crisis caused by the pandemic. The company had liquid assets worth €600 million by the end of first quarter of 2020.

Comment


Disclaimer