Global automakers have battled constant supply-chain disruptions since the onset of the COVID-19 pandemic, leading to significant production setbacks and fewer vehicle sales. With gasoline prices soaring and a semiconductor shortage that has yet to abate, the industry has been unable to get back to pre-pandemic levels of output.
Now, prices of nickel are surging as the war between Russia and Ukraine sparks fears of worsening supply deficits. The rising cost of battery metals poses a significant threat to auto production moving forward as nickel is a key raw material used in electric vehicles (EVs). With car prices already significantly elevated, consumers may consider waiting to purchase a new vehicle until the market falls back into some form of balance.
Related ETFs: First Trust NASDAQ Global Auto Index Fund (CARZ), Global X Autonomous & Electric Vehicles ETF (DRIV)
Automakers Continues to Struggle with Industry-Wide Supply Chain Snarls
The global auto industry has battled constant supply-chain disruptions throughout the COVID-19 pandemic and 2022 has already fueled additional supply concerns throughout the sector.
The biggest problem facing automakers over the last two years has been a massive shortage of semiconductors used in the production of both gas-powered vehicles and electric vehicles (EVs). While some analysts and executives believed the shortage would abate, or at least ease in 2021, it now appears likely that the auto industry will struggle to obtain an adequate supply of chips throughout the year.
Sam Fiorani, vice president of AutoForecast Solutions, believes the chip shortage is “still very much a problem”, with auto production being hampered by a lack of semiconductors. Before the onset of the pandemic, total vehicle sales hovered between 17 to 18 million per month between 2015 to 2020. Now, in February 2022, total vehicle sales came in at 14.5 million, 16% below the same month two years prior.
According to Cnet, Ford missed out on an estimated 1.25 million vehicle sales last year due to the chip shortage, while GM and Toyota missed out on 1.1 million each. A study from the US Department of Commerce found that the median inventory of chips held by consumers, including automakers, fell from 40 days in 2019 to less than 5 in 2021.
While the chip shortage has shown some signs of improving, some executives see it lasting until 2023. Micron CEO recently told Fox Business he believes some semiconductors will remain in right supply, specifically mentioning the auto industry having a lot at stake.
Further, the Russian invasion of Ukraine could worsen the current supply crisis, as Ukraine accounts for 70% of the world’s neon, a substance used in the production of computer chips.
Despite these shortages, automakers have been able to scale back production of their lower cost vehicles and focus on high margin models to rake in impressive revenue. Per CNBC, BMW recently reported record-setting profits in 2021, which it attributed to prioritizing its most profitable vehicle lines.
It seems that automakers would be raking in even more revenue if not for the semiconductor shortage. US vehicle inventories are currently…
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