What Lies Ahead For The Automotive And Components Sector Of The United Kingdom?

UK Automotive industry review – 2019

2019 was not a good year for the United Kingdom automotive and components sector, as this segment saw the worst decline in the last 18 years since 2001. In the month of July, car production had fallen by almost 10 per cent year on year. By the final month of the year, it turned to be the 14th straight month, in which the manufacturing of cars was down. To put this in context, it was a much longer period of fall in the production of cars, even leaving behind the 13 Month period of decline in 2008-09, during the peak of the global financial meltdown.

With the prevailing situation, the primary reason for the weakness of the automotive sector in the UK can be termed the Brexit. In 2016, just prior to the Brexit referendum, the UK car industry was doing really well, on the back of the increased demand of the Diesel commercial vehicles. This demand came crashing down after the referendum, as the general opinion suggested that the uncertainty around the trade environment and potential trade agreements with the European Union, in case of a hard Brexit would be hard for the UK based consumers. The slowdown in demand continued for the next 3 years, with a worsening in the political situation in the country, as well as the weakening of the manufacturing sector as well, which led to a rise in prices. Recently, in 2019, the already bad situation aggravated with the escalating trade tensions between the US and China, which had an impact on the business environment all across the world.

Another factor that directed this plunge of cars being manufactured in the country was that the companies were not able to find the required capital, as investors were not confident about investing in the British economy in times of such uncertainty.

What to expect from the automotive Industry in 2020?

If the economic indicators are to be believed, 2020 is expected to be another year of stagnation for the UK automotive industry. In the year 2019, the UK economy grew by less than 1 per cent as far as primary available data are concerned, though the final statistics are still awaited. The official statistics could be even worse, though as the retail sector in the last quarter showed absolutely no growth. The year 2020 awaits the formal exit of the United Kingdom from the European Union, but the uncertainties around the negotiations that have been made between the two parties are still keeping both the manufacturers as well as the consumers on tenterhooks. The threat of tariffs on cars as well as car parts are keeping the manufacturers worried, which could see demand going further down than it already is. If that is the case, the United Kingdom could lose some of its star car makers such as the likes of Aston Martin, Rolls-Royce as well as Bentley. Another factor is the rise of the electric car industry and the fact that the UK is lagging in that race. Even though the demand for the Electric cars in the United Kingdom has risen, especially over the last one year, the country is currently in no position to meet the potential demand. Major battery manufacturers are operating from China, Japan and South Korea, and none of them is looking to invest in the country, primarily due to the fear of the aftereffects of Brexit. And unless and until the air clears around the Brexit deal, the situation is expected to remain the same.

Amid all the uncertainties, there have been positive as well for the sector, as recently there was an announcement of €100 million investment of Kia and Hyundai into the British second-generation electric vehicle Manufacturer, Arrival. The deal has given Arrival the access to the resources and other partnerships of the two Auto Giants from all across the world, including the capital. On the same time, it has given a chance to Kia and Hyundai to increase their market share in the UK market. Through the course of the association, Arrival, Hyundai and Kia will utilise the adaptable skateboard platforms and tech to make new purpose-built electric vehicles (PBVs) across a wide range of vehicle classes.

Another positive to the sector that could be expected in 2020 is the innovation from the vehicles. Today’s technology would see the increased use of smart vehicles. This would shift the focus from traditional auto parts and components manufacturers to the ones providing smart components such as software and screen incorporating hardware.

Let us have a look at the share price performance of some of the auto companies that could be buzzing because of these changes in 2020.

Surface Transforms Plc (LON: SCE) Share Price Performance

On 20th January 2020, at around 08:30 A.M (Greenwich Mean Time), at the time when this report was being written, Surface Transforms Plc’s share price was reportedly at GBX 28.00 per share on the London Stock Exchange market, no change in  the price, as opposed to the last trading day’s closing price. The market capitalisation of Surface Transforms Plc was reported to be at £36.07 million with regards to the price at which the company’s share was trading at the time of writing.

The company’s share has given a positive return of around 87.92 per cent, in the year gone by, from the price of GBX 14.90, at which the company’s share was trading as on January 21, 2019. The Surface Transforms Plc share has also given a positive return in the last six months, of approximately 27.27 per cent compared to the share price of GBX 22.00 which was set by Surface Transforms Plc’s share as on July 19, 2019.

The company’s stock beta was reported at 1.33, indicating that the Surface Transforms Plc’s share has been more sensitive in nature, in comparison to the comparative benchmark index in the previous year.

Transense Technologies Plc (LON: TRT) Share Price Performance

On 20th January 2020, at around 8:35 A.M (Greenwich Mean Time), at the time when this report was being written, Transense Technologies Plc’s share price was reportedly at GBX 73.00 per share on the London Stock Exchange market, no change as opposed to the last trading day’s closing price. The market capitalisation of Transense Technologies Plc was reported to be at £11.90 million with regards to the price at which the company’s share was trading at the time of writing.

The company’s share has given a positive return of around 81.37 per cent, in the year gone by, from the price of GBX 40.25, at which the company’s share was trading as on January 21, 2019. The Transense Technologies Plc share has also given a positive return in the last six months, of approximately 16.80 per cent compared to the share price of GBX 62.50 which was set by Transense Technologies Plc’s share as on July 19, 2019.

The company’s stock beta was reported at 1.83; this indicates that the Transense Technologies Plc’s share has been more sensitive in nature, in comparison to the comparative benchmark index in the previous year.

Aston Martin Lagonda Global Holdings Plc (LON: AML) Share Price Performance

On 20th January 2020, at around 08:40 A.M (Greenwich Mean Time), at the time when this report was being written, Aston Martin Lagonda Global Holdings Plc’s share price was reportedly at GBX 448.50 per share on the London Stock Exchange market, a fall in the price of 0.77 per cent or GBX 3.50 per share, as opposed to the last trading day’s closing price, that was reportedly GBX 452.00 per share. The market capitalisation of Aston Martin Lagonda Global Holdings Plc was reported to be at £1.11 billion with regards, to the price at which the company’s share was trading at the time of writing.

The company’s share has given a negative return of around 64.52 per cent, in the year gone by, from the price of GBX 1264.00, at which the company’s share was trading as on January 21, 2019. The Aston Martin Lagonda Global Holdings Plc share has also given a negative return in the last six months, of approximately 54.72 per cent compared to the share price of GBX 990.40, which was set by Aston Martin Lagonda Global Holdings Plc’s share as on July 19, 2019.

A comparative share price chart of SCE, TRT and AML

(Source: Thomson Reuters) Daily Chart as on 20-January-20, before the closing of the LSE Market