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Global chip shortages to cost automakers 5% of production

4 years ago
in Business, Features, highlights, Home, home-news, latest News, Opinions, Technology
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Fitch Ratings - norvanreports

Fitch Ratings - norvanreports

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Global semiconductor (chip) shortages will cost automakers 3.8 million units in lost production, or 5% of estimated annual sales in 2021, Fitch Ratings says. Automotive demand is strong and manufacturers are prioritising the most lucrative models, helping to offset the impact of lost production on carmakers’ cash flow. Therefore, we do not expect rating pressures resulting from these shortages, unless their scale increases materially and demand weakens.

The chip shortages are likely to last longer and their impact will be greater than anticipated by the market, exacerbated by a fire at the Renesas factory in Japan in March. The chip shortfall will result in automakers suffering larger production losses, estimated now at about 3.8 million units, according to AutoForecast Solutions.

Many automakers expect to face the hardest pressures in 2Q21, but shortages should gradually ease in 2H21 and 2022, helped by the Renesas plant returning online by end-May and operating at full capacity in early July. Furthermore, there should be increased supplies from TSMC and others chipmakers. We expect automakers to gradually recoup lost volumes when shortages ease.

Automakers’ responses to offset the impact include a focus on the most-profitable models and building models that require few chips, such as units without navigation systems or digital displays. Some manufacturers are building and storing partially assembled vehicles with a plan to add necessary chips later. Manufacturers are enjoying high retail prices due to pent-up demand that supports revenue.

Plants in North America and Europe are most affected by the shortages with each region accounting for a third of global production losses. Ford, General Motors (GM), Stellantis and Volkswagen (VW) have experienced the greatest impact so far. However, exceptionally strong autos demand in the US in 2021, with a seasonally adjusted annual rate of sales of more than 18 million units in March and April, boosts manufacturers’ ability to mitigate some shortage stresses.

Ford expects the shortage to cost it about 1.1 million units of production in 2021, which will reduce its EBIT and free cash flow (FCF) by about USD2.5 billion and USD3 billion, respectively. The Renesas fire will have a significant impact on Ford’s second-quarter production, which will fall by about 50% from the company’s expectations going into 2021.

GM estimated its EBIT and FCF impact at USD1.5 billion-USD2 billion and USD1.5 billion-USD2.5 billion, respectively. Although GM now expects the overall impact of the chip shortage to be greater than it thought at the beginning of the year, it is mitigating some of the effects through increasing net pricing and focusing on the most-profitable platforms, as well as other workarounds, such as building some pickups with a modified engine control unit that will result in one less mile per gallon of fuel efficiency.

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Stellantis idled eight out of 44 plants at some point in 1Q21, with most of the outages affecting its North American operations. Production losses due to the chip shortages came in at close to 190,000 units, or 11% of planed output for this quarter. VW also idled some plants and its production decreased by 100,000 units in 1Q21 with further cuts of a few hundred thousand vehicles expected in 2Q21. It prioritises models based on profitability and expects to start catching up lost volumes in 2H21. Furthermore, electric vehicle production has been largely unaffected, supporting VW’s ability to meet its CO2 targets in 2021.

Toyota, Hyundai and Kia were the least affected in 1Q21 due to their supply management systems that include large chip inventories. However, as the global shortage widened after the Renesas fire, Hyundai and Kia started to experience disruptions at some facilities in May. Toyota may also face some risks.

Source: fitchwire
Via: norvanreports
Tags: AutoForecast SolutionsGlobal semiconductor (chip) shortages
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