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Around the tracks: Vehicle, chip makers cautious despite mostly bullish projections

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Around the tracks: Vehicle, chip makers cautious despite mostly bullish projections

After two years of shortages, the global chip industry's concerns continue to pile up. Chipmakers are now wary about weaker consumer demand, over-stockpiling by manufacturers and changes to US chip export policies.

The automotive sector usually accounts for a small portion of a chipmaker's revenue. Take Taiwan Semiconductor Manufacturing Co., for example, which attributes only 3.31% of its 2020 revenue from the automotive segment. Semiconductor chips, on the other hand, form a significant part for the automotive sector particularly as demand spikes for electric vehicles. For instance, S&P Global estimates China's electric vehicle sales will reach 6.71 million units in 2022, more than double from 3.12 million units in 2021.

Chipmakers who are major suppliers to the automotive industry, such as Infineon Technologies, expect a gradual easing of the shortage, while risks of further supply chain disruptions remain. For 2023, Infineon expects the demand-supply situation to stabilize as the shortage eases further. But Infineon cautioned about general economic slowdowns and potential energy shortages.

Vehicle makers have mixed projections: General Motors expect the shortage to last into 2023 while Volkswagen foresees an easing. Although several vehicle producers signaled that they were back to full production, many are still facing shortages. Toyota Motor Corporation had said its "situation remains difficult to predict due to semiconductor shortages and COVID-19."

Amid the caution, Toyota, Honda, Nissan and other major Japanese vehicle producers announced EV timelines but are still betting on hydrogen fuel-cell electric vehicles, together with their South Korean counterparts. Toyota Motor plans to invest about Yen 730 billion both in Japan and the US on EV battery production.

Forward gear: Carmakers invest heavily into new energy vehicles

Reverse gear: Inflation and high costs could muffle sales

Outlook

Chip shortages will prevent vehicle producers from meeting pent-up demand for the rest of 2022 and into 2023, so high prices for vehicles should prevail. But demand for chips could be strained further as vehicle producers accelerate their plans for more EV production and driver-assistance systems. Chips aside, vehicle makers are forming partnerships with secondary battery producers to guarantee supply for their EV expansions, which includes clinching battery materials. Vehicle makers with China-dependent supply chains could hasten their efforts to shift production elsewhere to minimize future disruptions caused by the coronavirus.

US

Vehicle sales in the US continue to be restrained by a lack of inventory caused by the semiconductor shortage and scheduled summer plant downtimes. US vehicle makers cited supply chain issues, including the ever-present chip cuts, as caps to production and shipments. Nevertheless, US vehicle makers faced the peak of the chip shortage in H2 2021 due to the COVID-19 pandemic. Despite current geopolitical and inflation issues, US vehicle makers could post better results for the rest of 2022 compared with the corresponding period of 2021 due to the lower base last year. Amid the current bearish situation, hot-rolled coil demand was weak amid cautious market sentiment pulling spot prices down.

  • Potential for H2 sales to exceed those of 2021
  • Vehicle inventories fall short of demand
  • Platts TSI US HRC index stood at $780/st on Aug. 31, down 38.6% from $1,270/st on Jan. 31

EU

New passenger car registrations in the European Union rebounded in August, its first increase since June 2021, according to data from the European Automobile Manufacturers Association, or ACEA. Despite the positive performance, August's volume was 11.9% lower than the previous month, marking a nine-month low, and far below pre-pandemic levels, ACEA said. Total sales for the first eight months of 2022 stood at 6 million units, down 11.9% year on year, the data showed. Like most global vehicle markets, the EU's market was dragged down by supply chain issues, while inflationary factors posed new challenges. Russia's invasion of Ukraine and COVID-19 lockdowns in China reduced supply of automotive components to the EU. Lengthy lead times and high operating costs could persist until the end of 2022 and into 2023. With geopolitical uncertainties and inflation concerns, vehicle sales returning to pre-pandemic levels may not be attained until 2024.

  • Supply chain issues drag EU automakers down
  • High operating costs could persist into 2023
  • Northern European cold-rolled coil prices averaged $1,481.51/mt in June, plummeting from $2,227.57/mt the year before, Platts data showed

CHINA

Power restrictions affected China's vehicle production amid the country's longest and most intense heat wave since 1961, when keeping records began. But passenger car retail sales remained buoyant, especially in August, mainly due to a policy that slashed taxes on purchasing gasoline cars. Besides the boost from the tax exemption, delayed orders from March to May due to a second wave of the pandemic and a lower base in the same period in 2021 also played a part in posting improved car sales. Over January-August, passenger car sales were up 1.7% at 16.86 million units while production was 4.8% higher at 16.97 million units, both on a year-on-year basis.

  • August vehicle output soars 38.3% year on year
  • Passenger car sales unlikely to support flat steel prices
  • China extends tax exemptions on new energy vehicles into 2023

INDIA

Vehicle producers also struggled to meet demand in India. The Federation of Automobile Dealers Associations said Sept. 8 that although vehicle availability has improved, queues for new vehicles remains long, citing strong demand for vehicles with better features. Vehicle sales in August stood at 1.88 million units, up from 1.59 million units the year before, data from the Society of Indian Automobile Manufacturers showed. August vehicle production was 2.28 million units, up from about 1.98 million units the previous year. Amid the positive factors, SIAM was concerned that volatile prices for compressed natural gas could affect sales of CNG vehicles.

  • Vehicle makers offer discounts for festive season in Q4
  • Demand outstrips supply as vehicle makers face chip shortages
  • Domestic vehicle producers eye export opportunities