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XTB: Semiconductor crisis will persist until 2024, and recovery will not be simultaneous for all carmakers


In 2021, experts estimated that the global chip deficit could gradually moderate in the second half of this year. However, at that time the conflict between Ukraine and Russia and the new epidemic wave in China were not risk factors “in the landscape”.

However, as events begin to make their presence felt in the first three months of this year, it becomes clear that the end of the semiconductor crisis does not seem to be so close.

This globally synchronized deadlock, fueled by a supply shortage, is a scenario that appears for the first time in the modern history of the automotive industry.

In short, we are in a context where the main catalyst is supply and where consumers cannot get vehicles globally due to production limitations.

The process of returning the semiconductor market to normal has been threatened by the conflict between Ukraine and Russia.

Although at first glance we may wonder why, the two states are important for the global production of these components.

Thus, Ukraine produces 90% of the neon that has a quality suitable for the production of semiconductors in the USA.

On the other hand, Russia exports more than a third of the palladium used by the United States in the manufacture of semiconductors.

Although companies have the stocks needed to meet immediate production, there is still the problem of identifying alternative suppliers, which makes production interruptions inevitable.

In addition, China is facing the largest pandemic outbreak in the last two years, leading to the introduction of an extended lockdown that puts pressure on its economy as well as supply chains.

Thus, according to Bloomberg, the containers are being collected in Shanghai, China’s largest port, as restrictions in the city have led to a shortage of trucks needed to unload imported goods.

Most of the global auto industry is affected by the persistent shortage of chips worldwide.

The UK, for example, had the lowest level of new car sales in two decades in March, according to the Society of Automobile Manufacturers and Dealers (SMMT).

The situation was considered even more disappointing as March is usually the busiest month of the year in the UK for car sales, as it is one of the two months in which new license plates are issued.

The SMMT Group described sales as “extremely disappointing” for the industry, which has been plagued by supply chain problems since the beginning of the pandemic, including a global shortage of chips and more recent problems with the supply of parts in Ukraine.

The lack of chips has forced carmakers around the world to cut production and made consumers wait up to a year to get a new model.

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The global shortage of semiconductors has also influenced the second-hand market, driving the prices of used cars above the prices of new models for the first time in history.

This trend is due to the fact that, at present, the consumer is willing to pay extra (a premium) in order to get in possession of the respective car faster, thus putting in the foreground its availability and not the fact that it is driven.

Auto Trader, which runs the largest online car store in the UK, estimates that one in five used cars less than a year old are sold for higher prices than newer versions of the same models.

The main problem is that forecasts are becoming less credible in terms of when the situation will improve, as the mix of geopolitical tensions, the lack of certain materials and government restrictions in some regions make it almost impossible to accelerate the recovery.

Recent research by Bain & Company offers an interesting picture of this issue, albeit more pessimistic for some sectors, but quite good for carmakers.

Thus, Bain & Company considers that the recovery from the chip crisis will not take place simultaneously for all companies. It all depends on the industry and the type of chip they use.

The analysis predicts a full recovery in 2024 or even later, which means a fairly long time horizon.

On the other hand, some industrial sectors will start to recover in 2022, and everything will accelerate during 2023.

Specifically, automotive and industrial companies, which use 6-inch, 8-inch and 12-inch silicon microplates, will see improvements in chip offerings by the end of 2022, mainly due to new factories becoming operational.

The confusion is so great that even the major car manufacturers fail to offer a similar opinion on the time horizon of solving the problem.

Thus, the CEO of BMW stated that the current semiconductor crisis could affect the car industry until next year.

On the other hand, the Volkswagen Group estimates that the shortage of semiconductors could continue longer than expected.

Its representatives said that semiconductor deliveries would not return to normal until 2024, when there would still be a structural under-supply.

The recent experience of these component shortages is forcing car manufacturers to take a step in the opposite direction in the last 30 years when it comes to supply chain management.

This is in stark contrast to the famous “Toyota Way”, which relied on a low level of supply and low inventory to reduce costs.

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Machine builders are currently considering creating stocks for certain parts because, in relative terms, the cost of owning those components is much lower compared to discontinuing an entire production line.

A shutdown can cost more than $ 50 million a week for an original equipment manufacturer (OEM), a much higher negative result than holding stocks worth $ 500,000.

The crisis is also forcing OEMs to reinterpret the way they manage the supply chain.

For example, there are growing arguments for carmakers to partner with companies they had limited relationships with just a few months ago, whether it’s chip makers or other companies that offer critical goods and services. for the manufacturer’s operations.

This is a sign of the changes that the supply chain crisis has brought to the automotive industry.

Over the past two years, the car industry has experienced an extremely challenging environment, from the chip crisis to the global pandemic that has forced carmakers to reduce production as demand has grown.

In such a scenario, we would expect the share price of car companies to have suffered, which is correct. However, they managed to manage the obstacles quite well and adapt to the new conditions.

These events have forced European carmakers such as BMW and Mercedes to raise the prices of their models, making record sales profits in 2021, despite lower sales volumes.

Similarly, the VW Group gave priority to premium vehicles of the Audi and Porsche brands, which accounted for a significant share of the group’s profits.

According to the Financial Times, Volkswagen Group’s brand executives point out that the practice will continue even after the supply chain issues are resolved.

This direction is completely contrary to the approach of the former CEO, when the VW Group “fights” with Toyota and GM to obtain the first position in terms of volume.

In this context, I expect the car industry to be able to overcome potential future problems given the resilience and adaptability it has shown in recent years.

For this reason, it could remain one of the preferred sectors of investors.

However, the automotive sector is positively correlated with major stock indices, whether we are talking about the S&P 500 in the US or the Dax in Germany, which suggests that in the event of a large-scale decline due to a period of economic slowdown, automakers they will follow the direction of the wide market evolution.

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