Around the tracks: Vehicle makers lower annual forecasts amid parts shortage

A global semiconductor shortage affected vehicle makers over Q3 as they struggled to maintain production to meet firm demand.

Makers such as Japan's Toyota Motor lowered its output by 400,000 vehicles over September and October, thereby also reducing its production forecast for the fiscal year ending March 31, 2022, to 9 million vehicles from 9.30 million vehicles.

Chip production hubs, such as those based in Malaysia, are slowly restoring output affected by the coronavirus, especially as the country lifted interstate and international travel restrictions for residents fully vaccinated against COVID-19. Despite attempts to restore manufacturing activity, the chip shortage is likely to remain well into 2022.

Forward gear: Countries relax border restrictions to restart economies

Reverse gear: Chip shortage recovery could be prolonged

US

US manufacturing stayed on the expansion track in September with the Purchasing Managers' Index at 60.7 but slowed slightly from 61.1 in August, data from IHS Markit showed, hindered by severe material and labor shortages amid supply chain disruptions. Domestic vehicle makers took a hit in Q3 as makers such as General Motors, which saw sales of 446,997 vehicles in the US during the three-month period, down nearly one-third from the year before. Market sources foresee a drop in new car sales in Q4 even though local demand is strong, citing low inventory.

• New-vehicle inventory stunted by the global semiconductor shortage

• The Platts TSI US HRC index was assessed at $1,950/st Oct. 7, up by 93% since the start of 2021

• US establishes Microelectronics Early Alert System to address semiconductor supply chain challenges

EU

In both July and August, passenger car registrations in the European Union fell after they posted growth from March to June amid the global semiconductor shortage. Year on year, July's new registrations dropped 23.2% to 823,949 units while August decreased 19.1% to reach 622,993 units. Amid the lower sales, the IHS Markit Eurozone Manufacturing PMI stood at 58.6 in September, contracting from 61.4 in August and marking its lowest reading since February.

• EU pricing policies for steel to change as more mills include new carbon surcharges

• Growing order cancellations from automotive manufacturers led to greater steel availability in the market

• EU mills target stable HRC prices amid growing import pressure

China

Manufacturing in China contracted over fresh outbreaks of the coronavirus as well as soaring energy and raw material prices. The manufacturing PMI as published by the National Bureau of Statistics for September stood at 49.6, marking six straight months of decline. Similarly, Chinese media company Caixin's PMI hovered at 50.0 for September, its second lowest reading in 17 months. Year-end winter heating season may put downward pressure on industrial activity.

• The overall supply of chips in Q4 is expected to be better than Q3, but the supply of chips is still short: China Association of Automobile Manufacturers

• New energy vehicle production will suffer less from the chip shortage compared to fuel vehicle and could stay at high levels in the months ahead, market observers told Platts

• China plans to roll out assessment measures to regulate data sent abroad by vehicles

India

India's manufacturing remained on the expansion track as the IHS Markit India Manufacturing PMI improved to 53.7 in September from 52.3 in August. The chip shortage affected domestic production while local vehicle manufacturers raised their list prices to cope with high material costs. The Federation of Automobile Dealers Associations projected that the shortage is not likely to ease within next two quarters, namely Q4 2021 and Q1 2022.

• Passenger vehicle sales of1.14 million units from April to August 2021 were still below levels posted in 2016-17: Society of Indian Automobile Manufacturers

• Tata Motors to set up EV joint venture in 2022 with $3 billion in investments

• Higher material costs cause domestic vehicle manufacturers to raise list prices for their vehicles

Outlook

"Stabilization in the semiconductor chip supply is projected to arrive in the second quarter of 2022, but it may not be until early 2023 when production can finally meet expected demand and the sales backlog of the past year begins to be cleared," according to S&P Global Platts Analytics.

Amid the shortage, production costs have risen as automotive steel prices shot up and power costs surged.

Platts Analytics forecasted that 8.3 million vehicles globally will be cut from production over the course of 2021 and an additional 5.7 million vehicles in 2022. Out of these 14 million new vehicle sales, 1.6 million of the output cuts are projected to be electric vehicles.

Surging battery metal prices could also slow further switchover to EV. Nevertheless, more vehicles makers will form joint ventures with EV battery producers to secure batteries for their own EVs.