As we draw the curtains on 2023, I sit in my study surrounded by stacks of reports, data sheets, and expert commentaries. After a year of dissecting trends and evaluating forecasts, I am ready to distil my findings into some predictions for 2024. This blog, drawing from a wealth of information from Oxford Economics, Pantheon Macroeconomics, BlackRock, and the Auto Retail Bulletin, is my endeavor to provide that insight.

The Economic Pulse of 2024

The global economy in 2024 appears to be at an inflection point. It appears to most that the era of cheap money is over, giving way to a structurally higher interest rate environment. The implications are manifold: every variable in the investment equation is recalibrating from the cost of capital to the valuation of assets.

In the UK, the economic discourse is centred around inflationary pressures easing off their peaks, yet not receding entirely. Pantheon Macroeconomics highlights that the Bank of England is grappling with these pressures against a backdrop of moderate wage growth - a delicate balancing act that will shape monetary policy in the year ahead. Markets appear to be optimistic that interest rate cuts in the UK are impending and will be aggressive as the economy slows, we don’t see this as a foregone conclusion.

Automotive Industry: A Sector in Transition

The automotive industry, a bellwether of technological progress and economic sentiment, is gearing up for transformative years ahead. The push towards electrification is unstoppable, with EVs continuing to capture market share. However, the transition is not without its speed bumps. Stellantis' postponement of its agency model indicates a broader industry trend of cautious progression. Such strategic recalibration underlines the complexity of aligning manufacturing capabilities, supply chains, and consumer expectations.

The UK's Zero Emission Vehicle (ZEV) Mandate sets ambitious targets. Yet, the extended timeline for the ICE ban to 2035 offers a reprieve, allowing the industry to navigate the transition more thoughtfully. This phased approach could serve as a blueprint for other markets, balancing environmental imperatives with economic realities.

Dealerships: The Human Touch in a Digital Age

The evolution of the dealership model in 2024 will be a litmus test for the industry's adaptability. In the face of advancing digital sales platforms, dealerships are expected to pivot, leveraging their unique position to offer enriched customer experiences. They must become adept not just in selling cars but in orchestrating services around the EV ecosystem.

China's Growing Footprint

China's ascendancy in the automotive sector, particularly in EVs, poses both a challenge and an opportunity. Their market share growth, driven by rapid innovation and state support, is reshaping the competitive landscape. As investors, we need to be cognizant of this eastward pivot and position our portfolios to capitalise on emerging opportunities while mitigating risks.

The Used Market: A New Equilibrium

The used car market is likely to return to a semblance of normality in H2 2024. After the volatility in used car values seen during the pandemic, a return to traditional depreciation patterns is anticipated. This realignment could spell a resurgence in the secondary market, providing stability and predictability, which are essential for long-term planning.

The Surge in Alternative Finance

One of the most striking developments is the projected growth in private credit markets. As traditional bank lending recedes, alternative finance options are stepping up to fill the void. This shift heralds a new era for venture capitalists and private equity investors, offering a chance to innovate and disrupt the lending landscape.

Equities and Fixed Income: A Discerning Approach

The need for selectivity in equity and fixed income investments will be heightened in 2024. With the market showing greater variance, and traditional correlations between asset classes becoming less predictable, a granular approach to investment decisions will be imperative. Navigating this complex tapestry will require deep research and a nimble strategy.

Technology and Sustainability: The New Vanguard

Technology, particularly AI, and sustainability initiatives will continue to be significant investment themes. Investor enthusiasm for AI and digital tech persists, despite the headwinds of rising yields. Climate tech, spurred by the urgency of environmental challenges, is emerging as a critical area for investment, promising both impact and returns.

Conclusions

The challenges and opportunities that 2024 brings will require a blend of strategic foresight, adaptability, and a deep understanding of evolving market dynamics. Embracing these changes with a balanced approach will be key to navigating the year ahead successfully, particularly in the dynamic world of automotive innovation and investment. The automotive ecosystem is more resilient than many often give it credit for, and while there will be change and near-term challenges afoot, there are some excellent emerging companies in the sector that make us excited about the year ahead.

Have a great week and enjoy the Christmas break.