France Autos Report Q1 2011

BMI’s view that the French carmakers are among the best positioned in Europe to tap into growth in the electric vehicle (EV) sector is gathering support. Renault, along with its alliance partner Nissan, already aims to become a global producer of fully electric vehicles (FEVs) by 2011, while PSA Peugeot Citroen is looking at alternative strategies to ward off consumer concerns about electric cars.

PSA is planning a vehicle leasing programme, which it hopes will help it achieve its target sales of 30,000 EVs a year by 2015. PSA has already joined forces with Mitsubishi Motors to develop electric cars to be sold in Europe, but its EV leasing programme is likely to be available only for the C-Zero electric city car. With most of their German and Italian rivals still quite a way behind, these strategies clearly makes them well-position to make an early impression in the market.

However, it remains questionable whether these carmakers will be able to bag any of these gains in the home market. BMI has long been cautious that the lack of adequate infrastructure will be a major impediment in the growth of EV sales worldwide. To that, the French government’s plans to install a million battery-charging points across the country by 2015 and 4mn by 2020, in the hope of getting two million hybrid electric cars on roads nationwide by that year.

The short-term outlook for market demand, however, shows that the aim could be hard to achieve. Slowing private consumption, particularly from H210 has made way for a cumulative 1.4% y-o-y fall in new car sales, prompting BMI to revise down its end of year sales forecast to a nearly 2% y-o-y fall by the end of 2010. With austerity measures kicking in from 2011, BMI expects sales recovery to be limited at only 1.7% y-o-y during the year. Nevertheless, with overall sales expected to reach nearly 3mn units by the end of 2015, carmakers can hope to bag some gains, thanks to growing interest from consumers.

Domestic production, however, will continue to be a constant challenge for the carmakers, amid pressure on cost minimisation and vehicle development. Latest estimates from the French Auto Makers’ Committee (CCFA) have shown that auto production in France increased nearly 22% y-o-y, to 1.46mn units, during 9M10. But with depressed European demand during 2011 and 2012 and low cost of production overseas, carmakers will be tempted to increase production abroad. Amid fears that focus outside could hamper recovery in French auto production by even 2015, the government, in turn will be keen to persuade companies to maintain production in the country.

France’s disadvantage in high production bases is greatly offsets by its stable regulatory environment and a more or less supportive environment, both of which have helped the country occupy third position in BMI’s Business Environment Ratings for the auto industry in Europe. However, we fear that this position could soon be challenged by Russia which is showing a lot of potential for high growth. Again, France’s potential loss of production is likely to be its biggest weakness against that of Russia which is poised for robust growth ahead.