UnusualWhales

A report from UBS estimates that global car production will exceed sales by 6% this year, leaving an excess of 5 million vehicles that will require price cuts to get sold off of lots, per Yahoo Finance.

The U.S. automotive market has experienced a rapid slowdown in just a few months. Despite reaching record-high average car prices as recently as last summer, some analysts are now forecasting an oversupply of vehicles that could trigger a price war, leading to a significant drop in prices.

A UBS report suggests that global car production is set to outpace sales by 6% this year, resulting in an excess of approximately 5 million vehicles that will require price reductions to facilitate sales, as reported by Yahoo Finance. These price reductions could become more prevalent in the latter part of 2023, prompting automakers to prepare for a potential price war. In fact, some electric vehicle manufacturers have already started cutting prices.

In a client note, UBS expressed concern, stating, "Given the bullish production schedules, we see a high risk of overproduction and growing pricing pressure as a result. The price war has already started unfolding in the EV space, and we expect it to spread into the combustion engine segment in the second half of 2023."

The analysts also pointed out that makers of family cars are more likely to be impacted by price cuts, while luxury car manufacturers are expected to withstand the pressure more effectively.

Electric vehicle manufacturers could face significant challenges due to the combination of soaring energy costs and high vehicle prices, which may put them out of reach for many consumers, as highlighted by Yahoo Finance. For instance, Elon Musk's Tesla reduced the prices of its cars by up to £8,000 in the U.K. in January, bringing some of its more affordable models into a price range comparable to mass-market brands like Kia.