An almost two-year-long semiconductor shortage is expected to ease in the second half of 2022, but rising costs in battery construction for global auto manufacturers offer fresh grounds for concern, according to automotive experts.
Global auto manufacturers have experienced a tumultuous last two years characterised by Covid-19 lockdowns, assembly plant closures, falling demand for new vehicles and significant delays in the microchip supply chain.
But, as governments unwind their pandemic restrictions this year, the auto sector is expected to experience “substantial pent-up demand which manufacturers cannot meet,” according to Paul Lund, head of industrial ratings for Europe, the Middle East and Africa at Fitch Ratings.
Lund said that while bottlenecks in semiconductor availability will ease this year, he warned that rising prices for raw materials, particularly metals, threaten to upset automakers’ plans to transition from internal combustion engines to electric vehicles.
“The issue for the sector concerns securing what is required for electric vehicle (EV) production, specifically battery construction and reducing dependence on raw materials,” said Lund.
Higher prices for metals such as cobalt, which help stabilise the charging and discharging of EV batteries, threaten to upset automakers’ plans for greater electrification.
Automotive industry bosses acknowledge “there has to be more investment in the semiconductor supply chain, with many automakers looking to shorten their supply chains and bring key components under their direct control,” said Lund.
A lookback at the semiconductor shortage
The auto industry has been one of the hardest-hit sectors by the semiconductor shortages, in large part because the chips it uses represent old transistor technology, which is becoming increasingly less profitable for chip manufacturers to produce.
At the start of the Coronavirus pandemic, auto manufacturers scaled back their production plans at the same time as demand for semiconductors was absorbed by manufacturers of laptops, tablets and other internet-enabled devices, as home working took off.
“Auto manufacturers and auto suppliers took supply chains for granted, so when capacity wasn’t booked for a couple of months, semiconductor producers simply moved that capacity elsewhere, where demand from other industries was strong,” said Lund of US-based credit rating agency Fitch Ratings.
Once car manufacturers decided on increasing vehicle production, their demand for silicon chips was already out of step with cutting-edge semiconductor production. Silicon chip demand by auto manufacturers remained stuck in 2019 with relatively large chips still being used, while high-end chip production had moved to significantly smaller more profitable wafer technology, increasingly used in the consumer IT.
What to do to minimise the disruption in your business, and how can VRS Africa support?
Despite the ongoing challenges, we have a dedicated team across our various locations working hard to micromanage your fleet. We have partnerships with the official dealerships across brands which means which means we can usually get you what you need. Nevertheless, we still advise taking extra steps for your fleet needs:
• Plan Ahead: Identify your fleet requirements as early as possible and send as your quote request via our home page at www.voltacars.com. This will help us to collaborate with our suppliers, identify any supply challenges and find solutions.
• Expect Business as Unusual: Our broad supplier base means we can mostly meet your needs, even for high-demand operational vehicles such as vans, small saloons and SUVs. However, shifting between suppliers and specific brands might result in slight changes to delivery times dependent on availability.
• Contact Us: Our VRS Africa sales representatives are available to help in your decision-making process and advice on the best way forward. Visit our website, and let’s make your corporate long-term rental easy.