Welcome to the CIE Automotive Q3 results presentation. We have Lorea Aristizabal, Director of Corporate Development with us. At the end of the presentation, there will be a Q&A. We remind you that it's only possible to ask questions through the tool provided in the webcast. I now hand over to Lorea. Go ahead, please.
Very good afternoon, everyone, and welcome to the conference call on the results for this 1/3 1/4. A 1/3 1/4 in which we've seen strong growth in all markets compared to the 1/3 1/4 of last year. Thanks to a low comparison base, the 1/3 1/4 of 2021 was the most hit by the shortage of semiconductors.
A 1/3 1/4 this year that has had a very complex environment in general, both from the macroeconomic and sectoral points of view, and which has affected some markets more than others. If you like, we can review them quickly. We start with Europe, and in spite of a 20% growth in this 1/3 1/4, Europe continues to be the market most lagging behind.
It has grown in the 1/4 less than the rest of our markets and has been the only one that has worsened in volume sequentially compared to the 2 previous quarters. However, the current forecasts refer to a strong fourth 1/4, the strongest in the year, with 4 million vehicles produced, which would take the year 2022 to 15.2 million.
Even so, even this with very strong 1/4, these levels would represent 2% less than 2021, 6% less than 2020, and almost 30% less compared to the Pre-Pandemic volumes. From here on, 2023 is expected with a growth of 7% up to 16.2 million vehicles, which would simply mean a tying with the year 2020.
A European growth scenario for the fourth 1/4 and for 2023, which we consider with a certain amount of caution since we're facing a very vulnerable market subject to too many uncertainties, energy crisis, shortage of chips, inflation, interest rates, consumer confidence, emission regulations, et cetera. We move on to North America with a growth of 24% in this Crecimiento del mercado global. A little bit lower than global market growth.
Forecast of a strong fourth 1/4 similar to the 1/3 with 3.7 million vehicles, which would take 2022 to 14.5 million, 11% more than last year, 2021. Still 11% less compared to the Pre-Pandemic volumes. A growth that would continue next year with +6% for North America to reach 15.4 vehicles produced.
One of the main hypotheses behind these forecasts is the historically low inventory level that still exists today in the North American market and which should leverage productions in the coming quarters, making North America recover its Pre-Pandemic level by 2025. In China, a market that last year recovered Pre-Pandemic levels and making the comparison with this year much more demanding.
Even so, this 1/4 it has grown 31% and 30% sequentially compared to the second 1/4 of the year in a context where a lost volume is being recovered in the second 1/4 because of the COVID lockdowns, as you'll remember. China is also expected to have the strongest 1/4 of the year in Q4 with 7.4 million vehicles produced, which would take 2022 to 26.4 million, 6% more than 2021, and 7% over Pre-Pandemic volumes.
The current expectation is that China will continue to grow from these levels by 1% in 2023 to reach 26.6 million vehicles, offsetting somewhat the strength of 2022 and gradually reaching its historic record of 28 million, which it is expected to exceed in 2025.
Very good prospects for this market without significant bottlenecks like other geographies, and with specific incentives that have been implemented once again by the Chinese government to revitalize the automotive sector, a critical sector for the country's economy, and incentives that seem to be achieving the impact they were looking for.
Moving to India, a growth of 33% in the 1/4, and we have to emphasize the fact that India is a market that last year already reached Pre-COVID levels like China, which underlines even more the extremely strong Double-Digit growth this year, which has led to a quarterly production record of 1.3 million vehicles. For the first 1/4, a volume is expected of 1.2 million.
This would imply an annual growth of 21% and reaching the historic figure of 5 million vehicles in India, which put them in fourth position of producing countries worldwide. A fourth position that would be consolidated in 2023, with an expected additional increase of volume of 3%.
The combination of a really low car ownership level, a growing middle class, a strong Post-Pandemic demand and a normalized supply without disruptions in the supply chain back the excellent situation of the Indian market. Finally, Brazil, which has also grown in this 1/3 1/4 much more than the average, 34%, exceeding 600,000 vehicles, which consolidates several consecutive months of sequential improvements in volume in the country.
The fourth 1/4 is expected to be similar to the 1/3 and would take the Brazil market to 0.25 million vehicles from last year, although still at 20% below the Pre-Pandemic levels. For 2023, a new growth of 5% is expected and a gradual recovering up to 2.8 million vehicles produced, which were the Pre-Pandemic levels, and it is expected that these levels will be attained in 2026.
Well, the global market. The sum of the different snapshots of the various markets we've seen results in the 1/3 1/4 that so far is the best 1/4 this year, with 21.2 million vehicles produced and a growth of 27%. Even so, it's expected that the last 1/4 of the year will be even better, with 21.6 million vehicles produced.
A forecast based on significant sequential improvement both in Europe and in China, which we will have to monitor. If this is achieved, 2022 would reach 81.8 million vehicles produced, 10% below 2019 and 15% below the peak volumes of 95 million in 2017. With this backdrop, with this market, we have reported this 1/3 1/4.
A 1/3 1/4 where again, we have exceeded EUR 1 billion in sales for the second consecutive 1/4. This has taken us to sales of slightly over EUR 3 billion so far. Sales, which in comparison with the market in the first 9 months of the year, represent an outperformance of more than eight points. A 1/4 where we're growing at double digit.
High Double-Digit growth in all our account result lines in an environment that continues to be extremely complicated. A 1/4 which has highest EBITDA, with EUR 1.056 billion and EUR 171 million respectively, with an EBITDA and a net income growing by 30%. An accumulated EBITDA in the year of practically EUR 500 million, and a net income of EUR 235 million.
We have to highlight what we are achieving, significantly higher results than the ones we had before COVID, when the market hasn't yet recovered these levels. If we talk about the balance sheet and especially about cash flow, which as you know, is our top priority, it always has been and always will be.
Talking about operating cash flow, we have generated EUR 100 million in the 1/4, in line with the previous quarters, more than EUR 300 million so far this year, which means converting 66% of the EBITDA. If we talk about cash flow, including the growth CapEx and the growth working capital, we have generated EUR 75 million in the 1/4 and more than EUR 200 million so far this year.
We're talking about converting into free cash flow, approximately 45% of the EBITDA and reducing our debt level to 1.8 times net financial debt over EBITDA. We haven't done it that way. In this context, we have decided to invest the EUR 200 million in free cash flow generated during these first 9 months in corporate operations.
All with the same profile, all of them with a single goal, to remunerate the shareholder. We have invested EUR 94 million in dividends, EUR 60 million in buybacks to a reduced capital, and EUR 57 million in the purchase of MCIE minority stakes, taking this debt to 2.1 times financial debt EBITDA. In other words, our high cash generation level is enabling us, on the one hand, the value of the company by reducing debt from the 2.4 times net financial debt EBITDA in December 2021 to the current 2.1 times.
We're practically in our comfort zone of approximately 2 times. But at the same time, this enables us to invest in maximizing shareholder remuneration. The investment which we believe currently makes sense in the present context. There's little more to add.
These are the messages, and this is our presentation. I would like to end by saying that the good results in the last few quarters and the favorable prospects for CIE, even in this complex environment, enables us to talk about continuing to grow, and it enables us to look at the future with optimism, even if it's with prudent optimism because of the uncertainties today, of course. Now we can move on to the interesting part, if you like, to your questions.
Yes, we have several questions. Let's try to group the subjects together as usual. We'll start with the 1/3 1/4. There are 2 specific questions. The sequential drop in margins in Europe when the rest of the areas have improved, and another question is, The higher depreciation in NAFTA, is that due to anything specific?
Margins in traditional Europe, if I'm not mistaken, we're talking about approximately 15%, compared to a somewhat higher percentage in the 1/3 1/4 last year, 16 point something. If we look at it sequentially, I'm at 16, 17, 15.
There's a certain drop in margin in the 1/3 1/4. Yes, that's normal. I think it's normal. There's a penalization because we have to remember that this has been the 1/4 where the highest price we paid so far on average. We paid the average. I'll repeat it again, the highest average energy price so far. Yes, to me, it seems normal to have suffered a little penalization in the Europe margins this 1/4.
Also bear in mind that Europe, the Europe we report includes most of the most energy-intensive division we have, the aluminum injection division, and it also includes machining and plastic. In other words, we're talking about energy intensity in those divisions. I think that we need to normalize this. We have to talk about the first 9 months in an extremely complicated market in a Europe that's having margins between 15%-17% in these first 3 quarters.
I don't see the problem. What I see is an incredible achievement. The second question was about NAFTA depreciation. Okay. The depreciation issue. Yes, perhaps it's increased slightly. There are a number of issues, such as an increase in activity. You know that we have an important part of our amortization related to activity levels.
There's a part of the projects that are being launched, especially in our Golde plant in the United States. You have the initial depreciation of all that without yet having the sales and the results. There's a tooling depreciation issue in Mexico, but I wouldn't single it out as important. I think it's an isolated issue, and we've seen depreciation levels we've seen in the past and we'll see in the future.
Going beyond one 1/4 and one geography, where there's a slight one-off deviation. The next question is about the 9-month breakdown of Forex pass-through and market share gain. A recurrent question. If I remember correctly, this question was answered by Jesús María Herrera in June.
I think I remember that at that time, the growth in the first 1/2 had been 18%, and we were talking about a Forex of 6% and dividing the other 2-1/3s practically between real organic growth and pass-through. If we continue in the wake of Jesús María, I'll answer it the same way. After 9 months, we have a growth of 23%.
You've seen in the presentation 7-something Forex, which is approximately one-1/3, and the other 2-1/3s, I think, are distributed in real organic growth accumulated over 9 months and a little bit less than a 1/3 in the accumulated pass-through in these 9 months. We are also asked regarding the fourth 1/4 opinion on the IHS Markit forecast on that fourth 1/4 compared to the CIE portfolio.
Well, if we start talking about the fourth 1/4 and prospects, I would start by saying that the current visibility is always less than we had Pre-Pandemic. Before, the EDIs were 100% by our customers, and now our customers are changing with much less notice. This not only complicate production management but also visibility.
I'll say this as a disclaimer. Fourth 1/4, I said this earlier, the fourth 1/4, according to IHS, is going to be the strongest in the year, but it's based on 2 major hypotheses that are the special strength of the Chinese market in the fourth 1/4. A Chinese market that would be 7.4 million, stronger than all the previous quarters. This is possible. We think it's feasible considering the Chinese environment.
We can discuss later if you like. The other hypothesis is the enormous strength of the European market, which sequentially would go from 3.5 to 4 million vehicles. I think that this is where we actually have a little bit more caution and prudence, given the low visibility and the great uncertainty in the European market right now.
I don't know if there was something else in the question or was it the fourth 1/4 of IHS versus our portfolio. Our portfolio tells us that we could be talking about a Europe that is coming on strong. We've also had a slight portfolio in the last few months. Therefore, I think we have to be prudent. It could be a slight reduction.
I hope that the effects initially forecast will be felt in our portfolio. Now we're asked about 2023, the IHS estimates that have gone down over time. Do you expect further corrections in Europe, for example, for the OEMs? How do you see the 2023 as seen by IHS? Well, it's true.
IHS has lowered its revisions, and it's true that all the latest revisions have been concentrated on 2 markets. They've been revising and dropping market and raising China. But the net effect at different points in time in quarters, in different years, has given a net negative. Again, what I was saying about the fourth 1/4.
The fourth 1/4, 4.5 was the beginning for Europe, 4 is the current forecast, six point some million for China, and 7 is the current forecast for China. It's true that we have other kinds of estimates. Fitch, for example, I think this week, they published, and I think I remember that they spoke about a more negative Europe in the fourth and next year than published, than what has been published by IHS.
There are differences of opinion, and there isn't a very clear consensus, neither regarding the fourth 1/4 or 2023. Basically, it's focused on 2 geographies, China, but most of all Europe. When there's no consensus and difference of opinion, it probably means that we still have to wait for that consensus to reach a middle ground.
I think that we have to wait to move into the 1/4 to have a better vision, not just of the 1/4, but of next year. I think that we have to be cautious, especially about the European market, I would say. Thinking about the CIE and the raw materials that seem dropping, how are those negotiations going with customers? Perhaps raw materials could go down in 2023 and other types of inflation.
How are those discussions going? How do you see things in 2023 at CIE? Well, some things are easier than others. In the area of raw materials, there are difficulties, but there are conversations that are ending very successfully because in the end, raw material is a commodity included in trade.
Let me say that it's the least complicated part. I would talk about 2 areas, energy, especially focused on Europe. Initially, the customers were very negative about accepting the energy pass-through in Europe. It's true that over the quarters, the negotiations, I would say, ended up fairly reasonably.
There's a time when our customers have to make a decision, which is to kill their supplier base or accept at least part of that inflation that is having such an impact on the results of the suppliers. I think that they've understood that the long-term survival of the supply chain and their supplier base means accepting a part of that pass-through.
These are conversations that have been more successful with some customers in some geographies in some European countries than others. We're managing to pass through a good amount. The 1/3 look would be labor, especially in recent quarters.
There's been a brutal effect in the United States, and it's also coming here in 2023. In Europe at a lower level, but it's also coming. I think that customers there are much more negative about accepting it. We'll see how conversations develop in the coming months. Of course, we cannot make the future of our results that depend on those negotiations being positive.
We're very focused on action plans at all plants so that at all of them, we will try to offset all that potential that isn't a pass-through to customers. I think that our results prove this today. It proves that for many months we've been passing through what we can.
I think productivity, efficiency, expansion, resizing with our own tools where we can in each plant and with its own context, that this is what we've been doing and what we're going to continue to do. They're asking about the update of the chip situation and how you see the China-U.S. tension in the specific area of the chips. Well, regarding the chips, there are still bottlenecks. I think that's obvious. That's the way it was foreseen for 2023.
The situation is certainly better than it was last year. We're talking about an impact that last year was around 10,000,000 vehicles that were not produced, when for this year, about 3,000,000 are expected. The coming into operation of new plants, of new lines, of new chip production, capacity means that the supply is improving, it's normalizing.
Even though there have been tensions with China, Taiwan, United States, we believe that the trend to improve is going to continue. To give you just a figure, in this 1/3 1/4, last year, the impact was 3,500,000 vehicles that were not produced. For the 1/3 1/4 this year, it's been quantified at less than 500,000, approximately 400,000 vehicles. We're talking about an objective and a real improvement.
Again, I think that next year is the year for a gradual normalization over the quarters, a normalization in supply, something that some markets will be very grateful for because the chip impact is not the same in all markets. On the one hand, we have Europe and North America, especially the United States with the impact of the chip issue.
Well, they feel more than 50% of that impact. We have markets like China, India or Brazil where the chip issue practically hasn't had an impact on the supply chain. There will be markets like Europe or North America that will be much more grateful than others for the normalization of the semiconductor market. We're asked about the impact of labor cost increases in 2023, how much has already been negotiated?
Can you give us some color on that? I think I mentioned it in the previous answer on the repercussion of inflation in general. Labor is something that we've been working on for 2 years in the United States. It's something we're negotiating with customers. With some customers, we're more successful, with others less. It's being harder than raw materials or energy.
A s I said, we're proving that everything that isn't offset, whether labor or materials or energy is being passed through by the use of productivity tools in our plants, and we're offsetting that effect to achieve the results that we're obtaining. All the tensions we're seeing in employment in Europe, consumer confidence, interest rates, et cetera, can this improve the potential for CIE to gain market share?
M&A, how do you see it? Well, in history you've always seen that it's true that we make the most of crises. A starting point that is stronger than other players, together with a perfect storm that the sector has been going through for 3 years, means that there are many other players that suffer more than we do and that will die before we do.
This means that our customers are facing a natural selection in their supplier base, and we're gaining market share. I think that's the reality you've been seeing for many quarters. With the complexity of the market, it looks as if that's the reality of the market we're going to continue to see in the future.
The answer is yes, making use of the opportunity provided by this crisis that has a much bigger impact on other players than on us. We are asked about the underperformance of China and is it worthwhile taking position with these local producers in China or are these margins that are not within the CIE standard? Well, I'm afraid the answer won't change from the previous 1/4.
We're talking about commercial strategies that we have to give much more time to than a single 1/4. I'll answer the same we have in previous quarters. That is our experience so far in China is small. It's a couple of years. We've had a bad experience in projects with Chinese OEMs where the price levels don't meet our profitability standards.
We don't know if that's going to go on forever and ever, and it's not something that's going to change next 1/4 if you ask the question again. We've only been 2 months in China with the CIE Golde topic. So I think that we need to be there longer to understand what our commercial position is. Linking with China, thinking about Asia in general, we've bought shares from Mahindra CIE recently in the 1/3 1/4.
Although in China the GDP is shrinking somewhat, how have your expectations changed regarding Asia now you see that India is materializing its potential? Well, I'll start with China, for example. You've seen the growth this year, the strong growth this year, where we're above the Pre-Pandemic volumes already.
In 2023, we expect growth again, just at 1%, but it's a growth that makes up for the strong growth in 2022, and we think it can be more due to the incentives that are being provided by the government. It's true that for 2024 and 2025, bigger increases are expected, 5%-6%. There's demand, there are subsidies, there are no significant bottlenecks as there are in other geographies.
In other words, it's a good context. To give you a bit of color, incentives, there are very important incentives. The government wants to back one of the critical sectors for their economy, the automotive sector. We've seen a reduction in vehicle purchase tax, which was at 10% and has gone down to 5% as a national initiative in June this year.
It's being applied from June until the end of 2020. It's similar to initiatives we've seen in previous years, and this is additional to other incentives we've seen from local governments that were deployed in the second 1/4, incentives that are in 36 cities, 10 provinces that include 65% of sales in the country. In parallel, we're seeing the national government and the OEMs discussing the possibility of extending incentives one year further for new energy vehicles until 2023.
It currently ends in 2022. There have also been macro and monetary incentives in China that help with the general context, I don't know, from general tax reductions, extension of payback of loans, financing or funding of infrastructures.
In other words, the context supports the automotive sector, so we're relatively positive about this market, and the joy it might bring in global growth. India, another market, because I think you were asking about the 2 Asias. India, I think that we have to talk about the short-term and long-term potential.
Short-term potential, well, there are many factors, good crops. Rice and wheat export prices that favor rural income, a low impact to the semiconductors, as I said, perhaps because it's a less sophisticated market in their cars in general. We've also seen the launching of many new models this year, 2022. Many of them are going to coincide now with the festivities, with Diwali in this time of the year. Inventory levels that are still low, reduction of raw material prices.
In other words, the whole short-term context helps. If we think about the long term, when we look up, we see a very low car ownership rate, 3 out of 100 inhabitants. The expansion of the economy and the increase of the middle class is going to help improve this rate.
Half of Indian homes have a motorbike, but there's a tremendous margin to increase the penetration of cars, especially in rural areas with that rural income that's being favored and with those infrastructures that improve year after year. Also structural characteristics of India.
There's a young population with high consumer potential, a growing middle class. The new buyers represent almost 50% of car sales this year versus less than 40% that young part of the population a few years ago. These are very good figures.
Labor much cheaper than China. More companies going into the country. They speak English compared to China. This helps us to think about a positive India. You were asking about India. We see a very positive potential. Well, these are all the questions. Well, thank you all very much. In any case, we're at your disposal if there are any questions that haven't been asked or answered. Thank you all very much for your time.