Auto sector slowdown

Lack of car chips and drop in secondary price

GLOBAL CHIP SHORTAGE
 
It's been nearly 5 months since the global chip shortage emerged as a serious problem for the automotive industry. This bottleneck is leading to increasing cuts in car production across the industry, companies such as General Motors, Volkswagen, Nissan, Renault, Honda and Mitsubishi have been affected; Ford has announced that it will assemble its Edge pickup trucks and SUVs in North America without some parts, Jaguar Land Rover, the largest car manufacturer in the UK, already a few weeks ago informed that it will have to stop production in two plants starting from the end of April. 
 
 
REASONS FOR THE SEMICONDUCTOR SHORTAGE
 
The imbalance had started in the spring of 2020, when semiconductor companies diverted their production to consumer electronics, after the pandemic led to the closure of many automotive plants. In fact, lead times for the chips were already getting longer before the lockout from Covid-19, as demand from the automotive industry was steadily increasing, for example: systems that alert drivers when they leave a lane and make better use of an EV battery require more data processing than power windows and car radios; growing demand from the auto sector was joined by demand from the industry for 5G phones, laptops and other devices, which was accelerated by increased remote work due to the lockout measures.
 
A few months later, as automakers recovered and sales of electric vehicles increased, chipmakers struggled to ramp up their production to meet demand, creating an imbalance that was supposed to be temporary. But demand remained on the rise, so the shortage showed no signs of abating. 
 
 
PRODUCTION CUTS AND FALLING SECONDARY PRICES
 
The automotive production cuts brought about by the chip shortage have evidently reduced orders on the entire chain and brought secondary DIN226 / A380 aluminum quotations in Europe to a two-month low (from 2070 euros in April to 1850/1875 euros/ton, as seen in Diagram 1); it should be noted that this downward trend in foundry aluminum alloy cakes occurs at a time when aluminum quotations on the London Metal Exchange have reached three-year highs. 
 

 

THE ANSWER FROM THE MICROCONDUCTOR MARKET
 
Recently, in an effort to meet global demand, the world's largest chipmaker, Taiwan Semiconductor Manufacturing Company, said it will invest $100 billion over the next three years to increase production capacity. This move came after U.S. chipmaker Intel announced it would spend about $20 billion to build two new plants in Arizona as part of a plan to increase production in North America and Europe. Also in the U.S. , President i Joe Biden signed an executive order to increase chip production in the U.S. to address the global chip deficit.
 
FORECAST
 
The fundamentals of the global automotive industry remain positive of course, however this serious supply chain problem, which may have consequences for many months to come, will have to be solved by the automakers in a structural way. 

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