Automotive: this catastrophic scenario that threatens despite the end of the semiconductor crisis

La crise du Covid a secoué l

The end of abundance… Emmanuel Macron’s statement to the French could also ring loudly in the ears of car manufacturers. While the latter posted brash financial results in the first half, the landing could be more brutal than expected. The Covid crisis has certainly rocked the auto industry, before it was disrupted by semiconductor shortages. But the builders knew how to get through these difficult years with considerable aplomb, sometimes playing with partial unemployment, sometimes with an ultra-flexible production apparatus, or taking advantage of a favorable imbalance between supply and demand to impose their prices. Until now everything was going well, until the invasion of Ukraine by Russia last January. This time, the runaway prices of raw materials, and in particular of energy, have changed the situation with a worrying butterfly effect.

A disturbed macroeconomic outlook

Because this summer, the macroeconomic picture has totally and suddenly changed from what was expected at the beginning of the year: inflation of 9% (record since the creation of the euro), the first rate hike in a decade that will be followed by another three before the end of the year, the deterioration of all the main indicators of industrial and consumer confidence. The forecast of an 8% increase in the automobile market (source ACEA) throughout the year is no longer fulfilled.

“The semiconductor crisis is now just one of the elements that induce a risk of market contraction in a context of rising prices and falling consumer confidence. Especially since the negative evolution of the euro against the dollar is likely to increase the cost of vehicles”, explains Guillaume Crunelle, associate director of Deloitte and specialist in the automobile industry.

For car manufacturers, this deterioration in the macroeconomic context comes at the worst time, namely the tightening of European regulations on CO2 emissions. But electric cars are getting more and more expensive. And they run the risk of being even more so with the unfavorable effects of the exchange rate since most of the batteries are imported. Not to mention interest rates that are on an uptrend, but still very low.

The Semiconductor Shortage Is Over

At PwC we agree that the semiconductor crisis will soon cease to be an issue. ” The semiconductor shortage is on its way to being absorbed. There will still be supply shortages in Q3, but we no longer anticipate shortages in Q4 “, explains José Baghdad, partner responsible for the automotive sector at PwC France and the Maghreb.

However, the inflationary context deserves to be nuanced: “ Inflationary pressures in the automotive industry have been decorrelated with inflation from the macroeconomic point of view and are lower than a few months ago. There are even price reductions on certain materials. “.

Semiconductor Shortage Appears To Be Closing: Why That’s Not Necessarily Good News

Germany highly exposed to power outages

But for José Bagdad, the real danger is expected this winter with gas supply conditions in Europe. ” Germany is the country most exposed to this risk, and we estimate a drop in production of 1.5 million cars in the last quarter, which could be repeated in the first quarter of 2023 if the situation continues. », explains the PwC expert.

In other words, if Vladimir Putin cuts off gas to Europe (35% of German imports, 55% before the Ukraine conflict), German car factories risk having their electricity cut off. For comparison, the impact of the semiconductor shortage in Europe in 2022 accounted for approximately 660,000 cars. Winter promises to be a very long one for German car manufacturers.

These pressures on energy prices are also likely to affect the market for electric cars. ” The sharp rise in the price of electricity weakens the argument that the electric kilometer is cheaper than that of a thermal car. This is an added difficulty for manufacturers who are strongly urged by regulators to sell more. Guillaume Crunelle says.

“The rise in fuel prices will not necessarily favor the electric car”

But this catastrophic scenario is still in the hypothesis stage. What is less is the very strong deterioration in household and industrial confidence, which is already a reality. In France, consumer confidence indicators have never been this low since 2013. But for now, the impact has yet to be assessed. There is a macroeconomic point that remains to be clarified regarding the behavior of consumers whose confidence index has fallen. For now, the impact of a drop in demand is guaranteed thanks to a solid order book that would allow it to last for several months. observes José Bagdad.

Chinese manufacturers in ambush

“LThe question is how long manufacturers will continue to benefit from orders placed during the semiconductor shortage. Beyond that, there is a risk of a contraction in demand. “Judge Guillaume Crunelle, more concerned.

In the event of a fall in demand, manufacturers will lose the main lever that has allowed them to earn money in recent years of crisis. They will be caught in a vice between price pressures and insufficient sales. A fantastic window of opportunity for Chinese automakers who are poised to flood the European market with their electric cars at bargain prices.