The global automotive industry has been in turmoil since 2020. The industry and its supply chain were initially disrupted by COVID-19, and then by supply chain chaos when the sector was unprepared for the demand rebound.
With the semiconductor shortage beginning to ease, 2022 was expected to be a better year, as indicated by increased sales during the initial months. But Russia’s invasion of Ukraine and fresh COVID waves in China have further delayed the industry’s recovery. Restricted supplies of critical raw materials procured from Ukraine and Russia are causing new supply chain impacts, driving up raw material prices including that of lithium, cobalt and nickel – the latter by 60% – as well as aluminium and, to some extent, steel. Furthermore, gases used in the production of semiconductors are also impacted – although the overall effect is unlikely to be immediately material. To cope with these cost increases, automakers across regions have reluctantly increased their vehicle prices, despite the likely impact on demand.
The Chinese automotive sector is contending with a double whammy – subsidy cuts and sharply increasing materials prices. The country’s government cut subsidies on NEVs (New Energy Vehicles) by 30% in 2022. This was long planned but will impact demand right at the point where escalating costs are increasing prices:
The US recently released its EV policies which are designed to push up EV adoption rates. But the Ukraine crisis and geopolitical tension with China may hinder the country’s plans. The US imports a major portion of its rare earth metal requirement for vehicle production.
The ongoing Ukraine crisis has forced European automakers to halt production lines as the supply of critical auto parts has been severely hit. Moreover, in solidarity with Ukraine’s fight against Russia, automakers have withdrawn from Russia.
Auto OEMs such as Volkswagen, BMW and Porsche temporarily shut down plants to deal with the supply chain disruption. European automakers are dependent on Russia and Ukraine for the supply of raw materials for battery production, wire harness, neon gas and more. However, the level of dependence isn’t so high, which is one reason European automakers haven’t increased prices compared to other regions. There may be another reason, like profit margins, which are higher for European automakers and can absorb some of the extra costs.
The Japanese government removed most-favoured-nation (MFN) treatment for Russia over its invasion of Ukraine. This increased import tariffs by 3% to 10%. The demand for aluminium for automotive applications is rising due to the growing demand for lighter-weight products in line with the shift towards electric mobility. For these reasons, the Japan Aluminium Association is also concerned about price hikes, which may slow down BEV adoption in Japan.
India’s government had extended its Faster Adoption and Manufacturing of Electric vehicles-II (FAME-II) program by two years until March. This initiative is further supported by the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery storage. India is trying to become a world-class manufacturing destination and more self-reliant in terms of production. As India’s automotive industry is dependent on other countries such as China and Japan for automotive parts, it is becoming difficult for automakers to control input costs.
The recent cost increases have already affected the EV industry. 2021 saw EV sales rising by more than 200% but price increases are likely to put the brakes on a continuation of this fast growth. However, while EV sales will slow, sales of conventional ICE vehicles will see more significant declines due to the global fossil fuel price inflation. For 2022, we expect global passenger vehicle sales will be around 72 million, some 5 million units lower than our earlier projections.
Related Posts
Related Research
Apr 25, 2022
Aug 4, 2022