SHOPSMART AUTOS – CUSTOMER INFORMATION – NOVEMBER 19, 2021
Automotive Sector Update: Recovery underway, stirred but undeterredSales growing, underpinned by consumer demand
With the first half of 2021 already behind us, we are providing an update for our passenger car sector outlook for the full year. In our Automotive Sector Outlook, published in January, we outlined expectations for global passenger car sales growth of 7% to 9% in 2021. At the mid-point of the year, we are inclined to maintain this range, in spite of the continued supply chain headwinds experienced by car manufacturers. While some statistics for the first six months are still being finalised, we believe that things are progressing broadly as we expected with the recovery in sales, underpinned by solid consumer demand in major geographies. Specifically, according to the European Automobile Manufacturers’ Association (ACEA), in January-June 2021, EU demand for new passenger cars increased by 25.2% year-on-year (YoY) to reach 5.4mn units in total. Given that last year’s comparative base was significantly impacted by the emergence of the Covid-19 virus, EU car registrations this year showed a sharp year-on-year drop in January-February, followed by an even more optically pronounced recovery during March-May. This was followed by a solid rate of growth of 10.4% YoY in June, against a much higher prior-year comparative base. However, the ACEA notes that the first half registration numbers were still well below the 2019 pre-Covid levels, by as much as 1.5mn units (or 21.7%) for the comparable period. In terms of the global picture, we note that earlier in May, S&P also reiterated a positive outlook for global light vehicle sales in 2021, upgrading its forecasts for the year to 8-10%, from 7-9% previously, while also cutting the 2022 sales growth forecast to 3-5% from 7-9% previously. In absolute terms, S&P now expects global auto sales to amount to 83-85 million units this year, relative to 77mn in 2020. Across major geographies, in FY 2021, using a mid-point of the estimated range, the rating agency expects sales of 26.2mn vehicles in China (+6.9% YoY), 18.0mn units in Europe (+9.8% YoY), 16.6mn in the United States
Global Light Vehicle Sales Forecast
While we are encouraged by robust consumer demand fuelled by improved economic prospects, new vehicle inventories have not been replenished so far this year due to production volumes being held back somewhat by the well-publicised shortage of semiconductors for the use of passenger car manufacturers. These low inventories also resulted in the rapid rise in second-hand car prices.
Semiconductor shortages persist…
While we continue to believe that our base case scenario for the recovery of global passenger car sales this year should remain intact, we note that sourcing issues with the supply of semiconductors are proving to be a more lasting phenomenon than we, and industry participants, perhaps expected at the start of the year. As we have crossed the half-year mark, we feel that the visibility on the matter is still rather limited with new commentaries appearing almost daily and frequent updates provided on the sales and production impact. What can be noted is that the semiconductor shortages have already left a mark on the first half 2021 car manufacturer production and sales volumes and, also, the logistical issues are not likely to disappear completely in the short term as supply is still having trouble keeping up with demand.
…but won’t derail the sector’s recovery
At this point, we believe that the broad industry guidance is that shortages will continue to occur to some extent for the rest of this year and potentially into and even through 2022. In conjunction with its recent earnings, TSMC, the largest global chip manufacturer, commented that it expected supply tightness to last into 2022, but the company aims to increase its output of auto microchip units (MCU’s) by close to 60% YoY this year, relieving some of the supply pressures starting this quarter. We also note that the impact of the chip shortages is uneven across car manufacturers and each of them is striving to manage the situation in their own way and, importantly, prioritising the production of higher-margin models to minimise the impact on profitability, which given the aforementioned robust consumer demand should be less impacted than production volumes.
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