- Electric vehicles rise out of the semiconductor chip chaos
- Supply chain disruption could persist well into 2022
- Bright prospects ahead for the automotive industry
New car sales plummeted by almost 15% in March due to supply chain constraints and the cost of living crisis overwhelming motorists.
March is a crucial month for trade in the automobile industry and typically contributes to 20% of annual sales.
According to the latest figures from the Society of Motor Manufacturers and Traders (SMMT), 243,479 units were sold in March – the weakest March since 1998 – and a significant decrease from the 450,000 year-on-year average.
The decline in new car sales also reflected a sharp drop from numbers reported for January and February, showing a 23% annual recovery.
According to the SMMT, sales were hit by ongoing supply chain shortages, especially semiconductors, which plummeted following Russia’s attack on Ukraine.
Ukraine’s two leading suppliers – Ingas and Cryoin – are responsible for producing nearly half of the world’s supply of neon gas, which is a crucial ingredient needed for making semiconductor chips.
Following Russia’s invasion of Ukraine, suppliers were forced to halt production as Moscow threatened to raise prices and aggravate the shortage by escalating its attacks on the country.
The stoppage has cast a cloud over the production of semiconductor chips, which were already short in supply following the squeeze caused by the coronavirus pandemic.
Volkswagen Group sales have dropped to a 10-year low amid the chip shortage. Similarly, Audi reported a 25% decline in net sales for Q1, while Ford reported a 17% slump.
AA Cars CEO James Fairclough said, “the rising cost of living has hurt consumer purchasing power, which coupled with ongoing disruption in global supply chains is creating new challenges for car dealers.”
SMMT Chief Executive, Mike Hawes, described the latest report as “deeply disappointing”, noting that the decline in sales reflects the severity of the global semiconductor shortage.
He added: “Placing orders now will be beneficial for those looking to take advantage of incentives and lower running costs for electric vehicles, especially as the Ukraine crisis could further affect supply.”
“With increasing household and business costs, the Government must do all it can to support consumers to ensure sustained EV growth and achieve the UK’s ambitious net-zero target.”
However, it’s not all doom and gloom, as the report revealed that March 2022 was the best month on record for electric car sales, which rose by 78.7% year on year.
Increased Sales of Electric Vehicles (EV)
Electric cars have risen out of the semiconductor chaos, with more than 39,000 electric vehicles finding new homes in March, with the top two best-selling car models being Teslas.
EV sales are also up by a whopping 101.9% year-to-date compared with the same period the previous year, with sales more than tripling their market share from two years earlier.
With more focus on clean energy, we expect the electric car market to become even more dynamic, especially following the government’s decision to extend electric car subsidies for another two years after the pandemic.
Other car forms, such as hybrid, mild-hybrid and plug-in hybrid, have also increased in popularity in 2022, with a growing number of motorists favouring these vehicles over the conventional combustion engine.
Unsurprisingly, diesel car sales slumped by 51.2% in Q1 and currently occupy just 5.7% of the total market share. While petrol remains the most dominant form, making up 42.6% of the total market share, battery electric vehicles (BEVs) now account for 15.4% of the market.
The rise in EVs has also been supported by the growing availability of small car offerings at affordable prices, giving people a greater choice.
The cost of living crisis has also played a part in the rise of electric cars, with motorists looking to switch to a more efficient, cheaper means of transport.
While energy costs are rising, in the face of spiralling petrol prices, it’s still significantly cheaper to charge a car at home than pay at the pumps, with fuel prices across the country nearing £2 per litre.
Electric vehicles aren’t reeling from the impact of the semiconductor chip shortage due to the more modern electric components featured in the car.
Combined with their more eco-friendly engines, these incentives make electric vehicles more attractive for private owners and businesses, reducing costs without compromising quality.
Still, amid ongoing uncertainty, we expect companies to continue prioritising supply chain management in 2022. Even if the chip crisis recovers, supply chain issues will continue to impact the automotive industry well into 2022.
Supply Chain Disruption Likely to Persist in 2022
Besides the chip crisis, there is also the issue of transportation, with rising fuel prices, driver shortages and the growing need for more sustainable operations, among other factors catapulting businesses into a new era of logistics.
Freight prices are forecast to increase by two to seven times high in 2023, despite prices already being at record highs. According to Freightos, the average cost of shipping a 40-ft container from Asia to Europe is ten times higher than 2019 levels at $14,483 (£11,070.30).
Automotive Industry Association (OSD) Chairman, Haydar Yenigün, said that he hopes life can return to normal by Q2 2023.
There have also been significant price spikes in raw materials, including:
The Automotive Monthly Metals Index (MMI) increased by 8.1% month-on-month in April, while 92% of manufacturers surveyed by the British Chambers of Commerce (BCC) said they felt pressured to raise prices due to the rising cost of raw materials.
Aside from raw materials, there’s also been a 400% increase in natural gas prices and a 273% increase in electricity prices across Europe between January 2021 and January 2022, which has ramped up pressure on manufacturers, suppliers and consumers.
Bright Prospects Ahead for Automotive Industry
Approximately 10.3 million vehicles were incompletely manufactured due to the global chip crisis and the ongoing effects of the pandemic in 2021, resulting in total vehicle production decreasing by 2% year on year.
According to the OSD, automobile production suffered the biggest collapse, shrinking by 8% to 782,835 units, as the semiconductor shortage impacted these vehicles more significantly.
While much remains uncertain, automotive exports have made promising developments, and the underlying picture provides grounds for optimism on this year’s prospects.
Automotive exports increased by 2% on a unit basis between 2020 and 2021, boosting the total value of exports to $29.9 billion (£22.94 billion).
The investment picture in various countries, including the United Kingdom, is also positive. There is hope that the industry can maintain that momentum as supply chains become more stable and market recovery gets underway.
According to GlobalData, announced investment for the UK automotive sector hit £4.9 billion last year, the highest total since 2013.
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