Investment and financing in automotive industry: a steep road to success viola-funding November 6, 2023

Investment and financing in automotive industry: a steep road to success

Investments and financing of automotive industry
Investments and financing of automotive industry

Until today, the automotive sector generated more than 7% of the EU’s gross domestic product, being one of the engines of the European economy. This sector employs up to 14 million workers and these jobs are now of great social importance to the region. In 2020, the automotive sector topped the ranking of European industries in terms of total research & development spending, reaching €58.8 billion. The value of the global car manufacturing market reached €2.7 trillion in 2021, showing a weak recovery from the pandemic.

Investments and financing of automotive industry alongside modernization of existing facilities, research and development works and expansion of the dealer network require large investment

Sources of funding for such projects can be long-term loans, leasing instruments, project finance, bond issuance, and others. However, the uncertain situation in the European economy makes traditional financing of large projects less accessible, which forces companies to look for more flexible solutions.

Viola Funding offers investments and financing of automotive industry in EU and beyond. We also provide long-term loans and project finance. 

Financing the automotive industry are in the focus of European business

The recent decision of the European Parliament to ban the registration of new cars with internal combustion engines after 2035 means one important thing for the industry.

According to Euromonitor, in 2026 global sales of electric vehicles will reach almost 20 million units and will account for 23% of the total number of cars sold on the market. This is facilitated not only by new international standards, but also by local initiatives that are changing the face of mobility. Paris, Barcelona and many other cities make life difficult for car owners, especially those with internal combustion engines.

It is not surprising that electric brands are increasing their share in the structure of investments in the Europe automotive industry. The whole world is following this innovative path. Not only Tesla continues its successful model line, becoming the third most valuable car brand in the world.

Other examples include Nio, a Chinese rival to Tesla that is capitalizing on the boom in electric car sales in China.

It grew 150% last year and is likely to double this year.

Financing of ecological modernization of car factories on the rise

In particular, electric brands are blamed for the high level of emissions during production, which are up to 80% higher compared to the production of traditional diesel cars. Closing these gaps requires new investments in recycling technologies and the introduction of batteries that are more environmentally friendly.

The transition to zero emissions is also a huge challenge for the trucking industry. 2021 was a good year for the industry, with road transport growing by around 10% and signs of recovery seen across the globe. However, the need for significant investment in hydrogen cells and electric batteries has a negative impact on the financial outlook for the industry.

The growth of investments in factories dedicated to manufacturing EVs and batteries does not mean a complete victory over environmental threats.

Tesla is already discussing the use of these batteries with BYD, and Toyota has established a joint venture with Chinese company.

Polestar, Volvo’s electric car brand, also has ideas for sustainable production of electric cars, including the use of recycled materials.

The situation is complicated by the fact that only 5% of trucks in Europe, the leader in reducing emissions, are completely clean.

New approach to developments of the automotive industry

Another element of this trend is the growing popularity of “shared mobility”, which applies not only to cars, but also to electric scooters or bicycles. This may lead to reduced sales of new cars, but shared mobility is a trend worth paying attention to when making investment decisions.

The above mentioned European restrictions on internal combustion engine cars introduced in big cities are only part of the desire of these cities to decongest the streets and get healthy air.

On the one hand, we have less demand for new cars, and on the other hand, there is a clear trend towards better meeting the needs of car sharing companies.

One thing to keep in mind when looking at the rise in production and popularity of electric cars is their performance and durability compared to traditional cars. Although electric cars do not have a significant advantage right now, many experts believe that they will have a longer life and better value retention indicators in the future.

As in other high-tech industries, software add-ons and subscriptions are likely to become an important part of business models. For example, Tesla charges $10,000 for its “fully autonomous” app, which Elon Musk says could eventually cost as much as $100,000.

However, lower purchases will make consumers more dependent on services that will have to fill the gaps in EV manufacturers’ revenue.

So, the potential for this type of innovation is significant, but the investment requirements are enormous.

Investment in European automotive retail is changing rapidly

The pandemic trend of online shopping in Europe also applies to cars. Some brands are very actively developing this sales channel, platforms are being created that allow consumers to buy any car without leaving their seat.

Perhaps this means an imminent end to investment in traditional car dealerships.

An example would be Volvo’s decision to announce that their new electric cars will be available exclusively online.

The current logistical problems and the long waiting period for a new car configured at the dealer are forcing more and more customers to buy cars “in stock”, searching for them online in different parts of the country or even Europe.

Perhaps the development of hydrogen cars will change this, but the technology clearly lags behind in terms of supply and the necessary infrastructure.

Investments and financing of automotive industry in Europe is set to change significantly in the coming years.

The transition from internal combustion engines to electric cars, the introduction of hydrogen technology, the rapid development of autonomous driving and artificial intelligence, the gradual reduction of traditional car showrooms.

Challenges facing the automotive industry

The automotive sector in Europe and around the world is still reeling from the pandemic, which is having a negative impact on car production and supply chains.

In addition, the war shook the world fuel market, causing gas station prices to skyrocket. Other transport-dependent industries experience a rebound effect, causing prices to rise and governments having to suppress inflation with ever-higher interest rates. This, together with the decline in the purchasing power of Europeans, is causing consumers to lose interest in new cars, as their financing becomes too expensive.

Before the war, Ukraine was responsible for up to 10% of the total need for wiring harnesses in the European automotive industry.

The European car market is currently facing dangerous challenges, and experts are watching with concern how this situation will develop.

It is difficult to find unequivocal answers, although one thing is certain: for some players, revolutionary changes in the way of doing business are coming.

If you need help financing investment projects, or you are in need of funding for Investments and financing of automotive industry in please contact Viola funding Limited at any time.

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