Tesla CEO Elon Musk’s “very awful feeling” about the economy might be the “canary in the coal mine” moment for the car industry, heralding a recession for an industry whose executives have showed no symptoms of anxiety.
Musk’s warning is the first loud and vocal disagreement in the auto industry’s unanimous view that underlying demand for cars and trucks remains robust despite a two-year worldwide slump. This week, one CEO described demand as “sky high.”
Supply-chain snarls have now slowed sales, which have been worsened by Russia’s invasion of Ukraine. Wards Intelligence reports that new-car sales in the United States reached a low annualised pace of 12.68 million in May. That’s down from 17 million each year before COVID.
However, these difficulties mostly influence supply, whereas inflation threatens demand.
“The probability of recession is considerable, so what he’s suggesting isn’t extraordinary,” said Jeff Schuster, head of LMC Automotive’s worldwide forecasting.
Musk’s concerns, according to Barry Engle, a former Ford and GM executive who started Qell, a transportation-focused investment business, cannot be discounted. “A recession is becoming more likely,” he said. “Elon and everyone else are aware.” The difference is that, as an entrepreneur, he is more likely to act and speak the truth, even if it is unpopular.”
Officials in the industry are concerned about a future recession.
“The auto industry is rushing to the safe harbour of pent-up demand that might carry sales for years to come,” said Tyson Jominy, J.D. Power vice president of automotive statistics and analytics.
Despite all this, Industry officials also point out Tesla has its own issues, including possibly hiring too fast compared to its growth.