Semiconductor shortage

Semiconductor shortage will weigh on auto markets

  • Semiconductor shortages are forcing several carmakers to cut production targets, including General Motors and Toyota.
  • The delays will reduce carmakers’ ability to service rebounding demand, hitting the profitability of the already distressed sector.
  • With semiconductor shortages likely to last into 2022 we have reduced our near-term forecasts for new-car sales.
  • Low availability of new cars is pushing up the cost of ownership, as well as the prices of used cars. This is likely to further dampen sales.

New car registrations in three major markets—China, the EU and the US—slumped (see chart) in the last few months amid a shortage of semiconductors, a key automotive component. US-based General Motors, Ford and Stellantis have extended production cuts at their factories in North America, while Toyota (Japan) has slashed its production target by about 3% for this year.

Vehicle supply issues caused by the semiconductor chip shortage are expected to cost the global automotive industry about US$210bn in 2021, according to AlixPartners, a consulting firm. It also forecasts total production losses of 7.7m vehicles this year, up from its earlier forecast of 3.9m units in May. That will severely hamper the ability of carmakers’ to respond to an upsurge in demand as the pandemic eases, further straining cash flow.

More worryingly, several automakers including Daimler, Volkswagen and BMW (all Europe) expect the auto chip crunch to continue well into 2022, albeit in a less severe fashion. Mercedes-Benz reports that some of its customers may have to wait for up to a year for their new cars to be delivered. One result is that used car prices are rising, as new-car customers trade down. Although depreciation costs are lower, the total cost of owning a new car has also risen by 5% in the past year, according to the American Automobile Association, with rising fuel and insurance costs adding to the bill.

EIU has revised downwards its vehicle sales forecast for several countries in the past month to reflect these supply delays, as well as . We now expect global new passenger car and commercial vehicle (CV) sales to rise by 10% and 14% in 2021. Overall, the market will grow at a slower pace of 6-7% in 2022, as the chip supply crunch will continue to adversely affect automotive output.

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