1st ICAI 2020

International Conference on Automotive Industry 2020

Mladá Boleslav, Czech Republic

In 2018, the automotive industry in the EU-27 recorded a slight stagnation. For the first time since 2014, total revenues of the industry decreased (by 12% overall) and the pre-tax operating profit margin decreased from 5.15% in 2017 to 4.37% in 2018. Stock markets in 2018 also reflected rather conservative or negative investors’ expectations regarding the future development of listed automotive companies share value (see for example shares of Bayerische Motoren Werke AG, Volkswagen AG or Continental AG). Significant negative impact on the whole sector can be attributed to the pressure on reducing CO 2 emissions and the resulting uncertainty about the impact on future economic outcomes. The automotive industry is at the beginning of a transformation period. The need for knowledge of its internal laws, relations between key business indicators and its importance for the EU-27 economy seems all the more fundamental. We discuss our results with conclusions of Gereffi et al. (2005) Hummels et al. (1998), Brandenburg (2015), Pavlínek &Ženka (2016), Pavlínek (2017) and Bormann et al. (2018). 2. Problem Formulation and Methodology The automotive industry (NACE Rev. 2: 29 – Manufacture of motor vehicles, trailers and semi-trailers) includes all activities connected with manufacturing of motor vehicles, manufacturing of bodies (coachwork) for motor vehicles, trailers and semi- trailers and manufacturing of electrical and electronic equipment and other parts and accessories for motor vehicles. According to the Amadeus database of comparable financial information for public and private companies across Europe (published by Bureau Van Dijk / A Moody’s Analytics Company), there are 14,289 active companies located in EU-27 countries that are doing business in the automotive industry. In our research we use selected available data of these companies over a period of four years, from 2015 to 2018. Throughout the research in this paper we use aggregate values of company data – for instance, we sum the turnover of all companies in a country and consider it to the turnover of a country’s automotive industry. The aim of the paper is to uncover the relationship between the importance of the automotive industry for the countries in question (measured by the ratio of the turnover of automotive companies to GDP and/or GDP per capita) and the financial performance of local automotive companies. Subsequently, we discuss and identify the key value drivers of automotive companies in different countries. As a key measure of the financial performance of local automotive companies we use economic value added (EVA), which was developed by Stewart (1991). EVA is a financial performance measure expressing the residual income that was left over in a certain period of time after a company’s shareholders have been adequately compensated. Positive EVA is therefore generated only if the profit from operations exceeds the after tax cost of debt (r D ) and the cost of equity (r E ). A company’s EVA for any year t is equal to the product of capital employed (invested capital) CE at the beginning of the year t and the difference between return on capital employed ROCE and the weighted average cost of capital WACC. Capital employed (CE) consists of equity (E), interest-bearing debt (D) and equals to the sum of long-term assets (LTA) and net working capital (NWC) (1)

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