Industry Trend Analysis - Magna Investment Offers Tailwinds For Local Production - JUNE 2017
BMI View : Magna International's plan to set up a new car plant in Slovenia will help support the development of the country's autos industry by offering OEMs a base in which to set up local car production operations. This proposed facility will also complement Magna ' s planned new car paint factory, which will bode well for operational efficiency.
In March 2017, automotive supplier Magna International submitted plans to invest up to EUR1.24bn (USD1.3bn) in Slovenia to open a car plant, according to the Slovenian government. This new facility is expected to have a production capacity of 100,000 to 200,000 vehicles per annum and will help ease pressure on the company's Austrian facility which is nearing its production capacity limits.
We believe this investment will present an upside risk to our car production outlook for the country should this investment be finalised and if Magna secures contracts to assemble vehicles in the country. We currently forecast passenger car production in Slovenia to grow 11.2% in 2017, reaching 148,677 units and grow at an annual average rate of 13.4% over our 2017-2021 forecast period ( see 'Renault Clio Boost To Lift Production Outlook ' , January 19).
With Revoz, the Slovenian unit of French carmaker Renault, the only car manufacturer locally, this investment by Magna will bode well for the development of Slovenia's autos industry by offering foreign original equipment manufacturers (OEMs) a facility in which to set up car production operations in the country under contract. In addition, we believe this new facility will complement Magna's planned new car paint factory in Slovenia, which the company is expected to begin construction work on in Q217, and this will bode well for the company's operational efficiency.
|Production Outlook Looking Bright|
|Slovenia - Passenger Car Production, Units|
|f = BMI forecast. Source: OICA, BMI|
Production Supported By Upbeat Outlook For Car Demand
We believe that a positive outlook for car demand in Slovenia will create a supportive market for further investment into local car production. We forecast growth of 7.0% in passenger car sales in 2017 and average annual growth of 9.7% forecast period, reaching 100,968 units by the end of 2021.
|Sales Set For Steady Growth|
|Slovenia - Passenger Car Sales, Units|
|f = BMI forecast. Source: National sources, BMI|
This expansion will be driven by a positive economic outlook for the country, with our Country Risk team expecting real GDP growth to accelerate to 2.9% in 2017, up from an estimated 2.5% in 2016, which will help encourage growth in consumer spending ( see ' Domestic Demand To Drive Growth Upswing ' , March 8). We believe that the Slovenian consumer will benefit from a low interest rate environment and weak inflationary pressures which will see private consumption expand by 2.5% in 2017. Our Country Risk team also expects price growth to remain subdued throughout 2017, with inflation forecast to average 1.5%. Furthermore, we forecast interest rates to remain low in Slovenia, ending 2017 at 0.00%, which will help car loan rates remain affordable, and thereby contribute to growth in the passenger car segment.