Losses from pandemic shutdowns could be eclipsed by those caused by semiconductor shortage
That the car industry has deep pockets is not in doubt, whether it can emerge from the current semiconductor crisis unscathed less so – especially in a world considerably less equipped to cushion any pain in the wake of the pandemic.
In many regards, it’s a crisis of its own making: in simple terms, car makers cut orders for the chips when demand for cars was near zero at the start of the crisis and were shocked to find suppliers had found new customers in the gaming and electrical industries when they asked toresume business.
For now, the just-in-time bubble has burst catastrophically, the problems accelerated by earthquakes, floods and fires at various manufacturing locations around the world, and exacerbated again by rising Covid cases in Asia, where most chip manufacturing is centred.
It will fix in time – but will everyone survive? Analyst AlixPartners estimates the global chip crisis will cost the car industry £80 billion in revenue this year. That’s 3.9 million unmade cars globally. In the UK alone, the impact is estimated at around £10bn of lost revenue (around 350,000 lost registrations). Car makers working to often paper-thin margins don’t have much wiggle room.
Worse still, the problem is crystallising at a point when government support is being cut. Just as assistance, from tax breaks to furlough and more, is being withdrawn, so the horrid reality of running factories that cost billions to set up and maintain, with workforces running into the tens of thousands, is coming sharply into focus. Believe it or not, this crisis could cost the industry more than the initial coronavirus freeze.
How agonising it must be to be staring catastrophic losses in the face knowing the customers are there if only you had finished product to sell them. Jaguar Land Rover pointedly reported it now has 12 months of orders on 51 product lines. JLR won’t be alone. More in hope than expectation, Society of Motor Manufacturers and Traders CEO Mike Hawes ended his commentary on August’s figures saying: “Government can help by continuing the supportive Covid measures in place currently, especially the furlough scheme.”
For now, the car industry must seek its own solutions, from de-speccing cars of high-tech kit to only manufacturing models with the greatest profit margins. Customers in turn are paying more and waiting longer. After this, the road to electrification may feel simple after all.