Auto sector faces varying impact from chip shortage

Disruption to global automotive producers' operations as a result of semiconductor shortages has been less uniform than widely perceived, and some suppliers to the industry have started to report more favourable demand outlooks for the rest of this year and 2022.

The global automotive market has been hit hard by the shortage of semiconductor chips this year. In the EU, new passenger car registrations fell by 30.3pc on the year in October to 655,001 units. Registrations over the first 10 months of the year were up by 2.2pc over 2020 levels at 8.2mn units, because of crashing sales figures early in 2020 caused by initial Covid-19 lockdown restrictions.

New car registrations in the UK fell by 24.6pc on the year to 106,265 units over the same period. And in January-October, UK registrations reached 1.42mn units, up by 2.8pc from the same period in 2020.

Sales have now fallen for four consecutive months in the EU and UK. EU registrations fell by 23.1pc in September, 19.1pc in August and 23.2pc in July. But falling sales figures are no measure of demand, rather of supply disruptions caused by the semiconductor shortage and by the continuing effects of the Covid.

"While not the only factor at play, the impact of the semiconductor shortage on manufacturing cannot be overstated. Carmakers and their suppliers are battling to keep production lines rolling, with constraints expected to continue well into 2022 and possibly beyond," said the UK's Society of Motor Manufacturers and Traders' chief executive, Mike Hawes.

But while some carmakers have been obviously limited by the semiconductor shortage, others have suffered less.

Output for Japan's Toyota fell by 39.1pc on the year in September to 512,765 vehicles. Its overseas output fell by 29.9pc in September while its domestic production dropped by 55.3pc. But while the semiconductor shortage is a factor, the company has been more concerned with the pandemic effects than with the chip shortage, and expects to produce a record 850,000-900,000 units in November amid easing Covid restrictions in southeast Asia. Toyota is known for its robust supply chains, particularly since the 2011 tsunami in Japan exposed the danger of just-in-time supply strategies.

In Europe, some car producers this month gave much stronger demand forecasts to their aluminium alloy suppliers. One alloy producer expressed frustration with the lack of progress in the recovery of automotive output at the start of this month, but two weeks later was talking of the rebounding strength of his automotive customers.

Polish aluminium producer Alumetal last week said that demand for aluminium alloys from the European automotive industry stabilised from the end of October and that it expects demand to continue to increase in 2022.

At the start of November, Finland-based stainless steelmaker Outokumpu said demand from its automotive customers stayed strong in the third quarter despite the disruption that occurred across the wider industry as a result of the semiconductor shortages.

The first quarter of next year will be closely watched by automotive suppliers, and if the semiconductor shortage can be relieved for the broader industry like it appears to be doing for selected carmakers, then the forecasts for the future of the automotive market will revert to outright positivity. There is still a strong demand forecast beyond 2022, with Sweden's Volvo planning a third factory in Europe from 2025 and targeting an 80pc increase from 2020 output.

"The market continues to be weak but we're starting to hear better news from the automotive guys," an alloy producer said. "That can really be a game-changer."

By Jethro Wookey