If you’re in the U.S. and looking at a new or used car, you might have experienced sticker shock. This is due to the semiconductor chip shortage brought on by the Covid-19 pandemic. We’re dealing with similar conditions here in Germany. Prices continue to rise. Supply chain challenges remain in place. And we’re going to see headwinds in the near future.
Now, if you look at the sales projections, you might overlook the issue. The German auto industry expects sales to increase by 8% to 3.2 million vehicles in the current year. Optimism is also growing in other countries thanks to a boom in EV sales and increased consumer savings. But this doesn’t address the year-over-year decline in sales that we witnessed in 2020. We’re pulling ourselves out of a deep hole at a time the semiconductor shortage limits the global automotive industry.
During the first lockdown, manufacturers significantly reduced their production. Demand for semiconductors fell accordingly. Demand from the entertainment and computing industry, on the other hand, picked up strongly. And when the auto industry then turned the corner surprisingly quickly, there were no longer enough semiconductors available.
It’s not yet possible to predict when the situation will return to normal. According to experts, the shortage could become a permanent problem. This is because the auto industry plays only a minor role as a customer. Its market power vis-à-vis the semiconductor manufacturers is correspondingly weak.
Some automakers, such as Peugeot, are already helping themselves by installing analog parts such as speedometers with pointers. Yeah, we’re going back in time on our technology.
About Those Emissions
There’s more. Brussels is threatening trouble with new emissions standards. The EU Commission is planning the new Euro 7 standard and a significant tightening of the limits for CO2 emissions. The standard is to apply from 2025.
The Commission will present a detailed proposal in June. It’s generally feared that stricter limits will herald the end of the conventional combustion engine. Synthetic fuels would save the day.
But whether these can be produced in sufficient quantities and at affordable prices is doubtful. Car manufacturers will have to rely on the sale of conventional gasoline- and diesel-powered vehicles for a long time to come. After all, they need the revenue to be able to finance the high investments in e-mobility.
Cheating is a Problem
The current emissions regulations are already causing problems for car manufacturers. Many manufacturers exceed the limits for CO2 and nitrogen emissions. This is the result of measurements by the Emissions Control Institute.
The manufacturers are not using effective exhaust gas purification systems and are helping themselves with illegal defeat devices. In addition, manufacturers’ fuel consumption figures do not match reality.
There’s also cheating in e-vehicles. Electricity consumption is often 30% to 40% higher than the official figures. And the German government is standing idly by.
Regardless of the exhaust gas problems, the transformation in the industry is making ever greater progress. By the end of the year, there could be as many as one million electric vehicles on German roads.
This is because the range of vehicles is becoming wider, the ranges greater, and the charging times shorter. In addition, thanks to subsidies of up to €9,000, electrified cars have become more attractive in terms of price.
The only area where there is still a considerable need for action is expanding the charging infrastructure, especially across Europe. About 75% of all charging stations are found in just three countries: Germany, France, and the Netherlands.
There are challenges ahead, but I do think the industry will eventually recover. You’ll just need to be a little more patient than expected.
Daimler (OTC:DMLRY), Volkswagen (OTC:VWAGY), and General Motors (NYSE:GM) remain promising. In the case of Stellantis (NYSE:STLA), it remains to be seen whether the merger of Peugeot and Fiat Chrysler will succeed quickly and smoothly and whether the expected synergies can be realized.