Inventory, microchips impacting 2022 auto sales, EV rollouts

On one hand, there is production.

There is a resilient auto industry managing disruption after disruption — COVID-19, semiconductor shortages, supply chain headaches, labor woes, inflation and geopolitical uncertainties — all while doing its best to meet unwavering consumer demand.

On the other hand, there is transition — an auto industry in the midst of an electrification evolution, preparing for a future that will look very different from its past.

And in the middle is the prediction.

These are the insights that expose just how the automakers and their suppliers are going to get from where they are today to where they really want to be a decade or more from now.

During the second day of the Center for Automotive Research's Management Briefing Seminars, held Aug. 2-4 in Traverse City, Mich., analysts from Cox Automotive and LMC Automotive shed some light on what to expect through 2022 and beyond.

At the start of 2022, Cox Automotive projected 16 million light vehicles would be sold in North America within the year.

But as the months went by and the microchip shortage wore on, new vehicle inventory levels remained low, dragging new car sales down with them. And as sales figures continued to fall short of original expectations, the projections for the year continued to change.

Cox's optimistic 16 million at the start of 2022 became 15.3 million just a few months later before dropping even further to 14.4 million. It is likely that prediction will fall even lower before the year is out.

"And it is all because of inventory," said Michelle Krebs, an executive analyst with Cox Automotive. "[The numbers] say [sales are] down 6 percent from last year and are about 63,000 fewer than 2021, but it's a little deceiving, because last year the chip shortage really started to hit inventory and sales right about the June timeframe, so the comparisons are much better than they were."

The inventory challenges, in turn, are affecting pricing. Not just because of the law of supply and demand, but because of the nature of consumers' demands. Simply, they want more expensive cars.

"Some of that has to do with the fact that we are selling more SUVs, we are selling more pickup trucks," Krebs said. "And because of the chip shortage, these [semiconductors] are going into vehicles that have much higher revenue, higher profit margin."

Within the last decade the average cost of new vehicles has jumped significantly. In 2012, Krebs said, 55 percent of vehicles sold cost less than $30,000 and only 16 percent were more than $50,000. Today 35 percent of new vehicles cost at least $50,000.

To some degree this means that the pool of new car buyers is shrinking. Because as prices go up, affordability becomes more of an issue.

That said, however, Cox does not expect the current market conditions — higher MSRP and inflation, for instance — to really impact the sales of new vehicles in the months and years ahead, especially as fleets look to replenish. Any impact to sales is likely to come from production slowdowns.

"We believe that this market is — I won't say recession-proof, but less-vulnerable," Krebs said. "Because it [serves] a higher income bracket, [and has] a higher-credit-rating group of buyers, so it is a steadier group of buyers. So we may not see the downturns as much."

In the end, it amounts to both good news and bad news for rubber product makers serving the North American OEMs. Because while production volumes may be low now, they should begin to rebound, at least within the next few years.

"If you sell parts to auto makers based on volume, that is going to be a problem because we don't see volume going up substantially until 2025 — back to the 17 million [units sold] level," Krebs said.

And in the meantime, demand doesn't look to be dwindling, even if the overall pool of potential buyers is shrinking. Vehicles made are as good as vehicles sold.

Light vehicle production volumes are down. And there is one major reason for that: Microchips.

In 2021, LMC Automotive said, disruption of all types impacted global production volume to the tune of 10 million units. Of that, 90 percent is attributable to the chip shortage. And while those chip impacts have lingered into 2022, there have been signs of hope and improvement.

Now, it's a matter of determining just how long this semiconductor disruption can truly last.

"That is the question, isn't it?" said Jeff Schuster, president of Americas operations and global vehicle forecasting for LMC Automotive. "Our expectation is — and the reality is — there will be additional disruption as we progress, but we believe the situation will improve.

"I don't think it goes back to a normal or an essential non-disruption-type of environment at least through 2023. … As you look forward and look at the North American market and the U.S. in particular, I would expect a continued improvement through the remainder of this year into next year. But I think it is going to be far from normal for some time yet."

Ultimately, LMC anticipates total global disruption — from chips and other pressures — to curtail around 8.2 million units in 2022. That estimate is down from 9.6 million unit prediction from earlier in the year.

In some ways, that improvement can be seen on an OEM level.

Ford, for instance, saw 13 percent of its production disrupted last year, but only 5 percent was impacted during the first six months of 2022. General Motors, meanwhile, saw its production disruptions go from 11 percent in 2021 to 5 percent during the first half of this year.

"There has been a changing of the guard as to who has been disrupted the most," Schuster said. "You see some improvement in the North American domestics, primarily with Ford and GM both improving over this period, and you see some declines really with the Asian brands."

Most major auto makers have seen little change regarding production disruption from last year through the first half of 2022. Volkswagen's production disruptions held steady at 12 percent from 2021 through 2022 so far, while Toyota and Chrysler owner Stellantis saw production disruptions worsen slightly, going from 11 percent to 12 percent and 10 percent to 12 percent, respectively.

Whether production volumes hold steady is anyone's guess, Schuster said, noting that major disruptive factors — COVID-19, microchip shortages, inflation, war in Ukraine and supply chain headaches — are likely to have lingering impacts.

"None of those issues … have been fully resolved," Schuster said. "And until that occurs, I think we are looking at risks remaining high over the near terms."

Right in the middle of the disruption is an auto industry in transition. One that is focused on a more sustainable future — a future driven, of course, by electric powertrains.

Globally, Schuster said, battery electric vehicle  sales are expected to increase "pretty substantially" by 2034, coming in just shy of the 50-percent mark. It's a long way from the 7 percent mark expected this year.

But that forecasted surge in BEV sales alone doesn't tell the full story of the electrification transition.

"If you pull all of the electrification — so your hybrids, your plug-ins, your fuel cells, even — we get to about 72 percent [of total sales]," Schuster said. "The EV numbers total over 51 million units by 2034, and you can see that climb is pretty steep from roughly 7 million units of BEV volume that we are expecting globally in 2022."

Within the next three years, global BEV production is expected to hit the 16-million-unit mark.

For the most part, the share of the EV market should be pretty evenly split on a global level, but there are at least two auto makers that appear to be emerging as leaders in the global stage.

"At this point in time, you see Volkswagen Group and Tesla essentially fighting for that No. 1 position, but it is a pie that is divided up quite a bit as we look at the launches of additional products."

North America is one market where the share of both EV-driven sales and production is expected to grow significantly by the end of the decade. LMC predicts that BEV production will pick up by more than 200 percent before 2030, while non-BEV manufacturing drops by about 20 percent during that same period.

Non-BEV capacity in North America is right around 20.7 million units in 2022 and that is expected to fall to around 16.4 million units by 2029. BEV capacity — which stands at about 2.4 million units today — should hit 8.5 million by 2029.

Globally, over the next 18 to 36 months, the transition to EVs is expected to pick up quickly. How well that goes, though, depends on semiconductor availability. Because while electric vehicles have been — and likely will continue to be — prioritized from a manufacturing standpoint, especially when it comes to chip availability, there's still only so many microchips to go around.

"If we take that period, that 18-month period, there are a lot of BEV launches coming up, so I think there is the possibility that this chip disruption does affect some of those launches and the volume getting out there," Schuster said. "So we could see a little bit of deviation from expectation in the short term as a result of that."