Once chip shortages ease, output will be sustained by backlogs and growing demand for electric vehicles
The global chip shortage may seem interminable, but B2B multinationals serving the auto sector should begin preparing for a faster increase in auto production—potentially starting as early as mid-2022. Whenever it begins, auto production will be supported by massive, global pent-up demand for cars due to the production shortfall in the last two years. Firms serving the auto sector should anticipate how increased demand for their products, potential strains on other inputs, and a shift toward EV manufacturing are likely to affect their operations.
Overview
Since early 2020, the global auto sector has suffered: initially, from a massive drop in output caused by the first lockdowns in Q1/Q2 2020, but since early 2021, from a global shortage of semiconductor inputs, which are used in everything from brake sensors to power steering and entertainment systems for new vehicles.
Due to the disruptions, the world produced just 78 million motor vehicles in 2020 and an estimated 80 million in 2021, down from 90 million in 2019. Meanwhile, global vehicle demand has remained relatively intact, helped by fiscal stimulus in North America and Europe, and strong secular demand trends in most emerging markets. Robust demand amid constrained supply is leading to a global run on cars, with data and evidence pointing to collapsing auto inventories across a number of markets. Cars are flying off the lots.
Our View
The key constraint on global auto production is the chip shortage. Very early data from business surveys suggest semiconductor supply is slowly expanding, but it will likely remain constrained through H1 2022. However, by H2 2022 there is good reason to anticipate a steady ramp-up in automobile output. By that point, the auto sector will be digging out of an estimated global backlog of at least 21 million cars (to date), including 4.7 million in the United States and 6.2 million in the European Union—a backlog likely to take until 2025 to unwind. Strong demand will likely create supply pressure on other auto inputs, where capacity has been idling due to slow production in 2020–2021.
In an interesting twist, sales of electric vehicles (EVs) jumped last year—even despite the massive drop in overall vehicle sales. In China, EV sales in 2021 nearly tripled from 2020, and now account for 14% of the market. In the European Union, EV market share jumped from 10% to 15%. In the United States, pure EVs are making comparatively slower inroads (with just 2.8% market share), but hybrid-electric vehicle sales are growing faster, from 3.1% market share in 2020 to 5.1% in 2021.
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