Car manufacturers remain cautious despite record earnings

“My philosophy is two months plus in the order bank and two months minus in stock,” he said on his company’s earnings call. The current situation isn’t sustainable, given customers are waiting six or seven months for a car, but being light in stock is a good strategy given the global uncertainty, de Meo said.

Exactly why it is bad to hold a lot of stock with a risk of a downturn was outlined by Tavares at Stellantis. “In terms of sales expenses, it becomes immediately very costly to reduce your inventory,” he said. That's because you’d need to spend a fortune in discounts and marketing to persuade reluctant customers to take the cars.

The reason why customers might be wary of buying is because they are facing rising prices across the board, not just with new cars. However, car maker executives either don’t see a recession ahead or are reluctant to voice their concerns.

Either way, they think they are protected for just those reasons Tavares mentioned: no one is holding excess stock and customers are still waiting on cars.

“If you look at where we're at today relative to where we've been as a company, heading into what could be a potential downturn, we're in much better shape,” Farley said. ”We have three years of pent-up demand, and we have a very strong product line-up.”

Executives expressed mixed views about the direction of the raw material prices that have been pushing up costs. Jaguar Land Rover, for example, flagged that the price of key materials is coming down. Chief financial officer Adrian Mardell told investors that going into the second quarter in April, aluminium had been $3500 a tonne, but coming out it had dropped to $2400. Palladium, too, was down $300 a tonne. As a result, JLR booked inflationary costs of £160 million for the quarter instead of the expected £200 million. However, Mardell did warn model prices will rise “later this year”.

Meanwhile, Tesla CEO Elon Musk tweeted on Friday that “more Tesla commodity prices are trending down than up.” However, he was less optimistic on his company’s earnings call earlier last week that prices will follow downward. “This is fundamentally dependent on macroeconomic inflation. It’s not something we control,” he said.

However, Antlitz warned that the raw material price spike still hadn’t fully flowed through into finished cars. “The first half still benefited from lower prices. There’s significantly more burden in the second half,” he said.

Cars being developed now are being done so with the cost-cutting, complexity-reduction mindset developed during the pandemic that will mean fewer options and drivetrain configurations. The good news at Renault is that this philosophy allows for more models, with the company planning 12 launches in 2024. “Now we can do two cars for the price of one,” de Meo said. Additional models coming to Renault include the 5 and 4.

The question now is whether car companies will retain this discipline. Ford, for example, is already planning discounts in its home US market in the second half of the year as volumes come back, chief financial officer John Lawler said: “You’ll see prices come down some.”

However, the fear of some new shock or escalations of existing tensions could well persuade everyone to stick to the plan. As Tavares said: “I don't want to scare anybody, but we all can imagine what could happen in Europe… We can imagine if US society was to be broken… We can imagine a lot of black scenarios.”