The chip shortage will at some point come to an end, and when it does, BMW and Daimler want to assure their shareholders that prices will not come down. All that and more in The Morning Shift for September 13, 2021.
The semiconductor chip shortage has been wreaking havoc on the car industry, with automakers forced to put even their most profitable vehicles on hold time and time again. I can’t remember how many times we’ve seen production cuts here in America on everything including pickup trucks, in Europe on everything including high-end luxury cars.
It’s been a pain for consumers, but not exactly a problem for the car companies themselves, which have been making profits on these lower-volume, higher-margin cars. Don’t expect that to change, as the Financial Times reports:
“The pandemic has really opened everyone’s eyes — that a different paradigm is possible,” said Arndt Ellinghorst, an analyst at Bernstein. “Everyone loves it, including dealers.”
Discounts typically offered to customers at dealerships — usually around 15 per cent in mature markets — have been slashed, with some models being sold above sticker price.
A one percentage point decrease in the average discount would release $20bn in extra profits for car manufacturers, according to Ellinghorst, and discounts in Europe and the US have dropped by at least double that amount from their pre-pandemic peak.
BMW’s Peter said that the group’s US dealers, “always claimed . . . well we need the cars in the showroom, the customer is expecting to pop in on Saturday morning, 10am, and he wants to leave with everything done, fixed number plates on the car at 1pm latest.”
Basically, everyone hates that dealers only stock garbage nobody wants but that’s all you can buy. A paradigm shift has been waiting to happen.
That’s the angle from Bloomberg, which is reporting on production problems for Toyota again. Toyota is not alone in Japanese manufacturing in moving production to Southeast Asia to save money on production costs (well, paying workers), and all of this outsourcing has set the company up to get hit hard by Covid over there. From B’berg:
The delta variant, once again, outpaced Toyota’s efforts to secure semiconductors. The Japanese carmaker cut its expected production for the business year through March 2022 to 9 million units from 9.3 million.
It’s the latest sign that even the world’s No. 1 carmaker, which had weathered the global chip shortage better than its peers in early days of the pandemic, can no longer avoid the turmoil. The virus spread in Southeast Asia has led to a drop in operations at Toyota’s local suppliers, exacerbating the ongoing chip crunch.
Here are main points of Toyota’s announcement on Friday:
- The outlook for November and beyond is unclear, but demand is strong.
- Toyota is working to transfer production to other regions.
- Demand for chips in all industries keeps rising.
- Toyota retains its forecast for annual operating profit at 2.5 trillion yen ($23 billion).
When I say that Toyota is hurting, of course, I do not mean that its profits are greatly suffering. Why would they? We’re just in a global pandemic.
Speaking of Toyota, it’s mad about EV credits in America that favor union-made cars, as Bloomberg also reports:
Under the 10-year proposal unveiled late Friday, union-built EVs will get an additional $4,500 tax incentive, a measure that would favor the three traditional Detroit carmakers — General Motors Co., Ford Motor Co. and Stellantis NV — whose factory workers are represented by the United Auto Workers. That sweetener would be on top of a $7,500 base incentive that would be available for EVs.
The current draft discriminates “against American autoworkers based on their choice not to unionize,” Toyota said in a statement Saturday. “We will also fight to focus taxpayer dollars on making all electrified vehicles accessible for American consumers.”
Discriminating against workers’ choice to not unionize is some severely twisted logic. Americans are better off in unions, and it’s only the prolonged campaigns of big business that put any other thought in our heads.
Toyota is not alone. Tesla is pissed, as is Rivian. Maybe they should unionize! Seems like a win-win.
Lithium isn’t the only front in the awkward wait all these EVs need minerals extracted from somewhere? front. There is a rush for nickel, which you also find in electric vehicles. Toyota has been very heavy on nickel in its hybrid batteries, and all-electric trucks use nickel-oriented chemistry, too, as the Financial Times reports:
Demand for nickel, which is used in more powerful electric-car batteries and will be key to bigger vehicles such as electric trucks, is set to grow 19-fold by 2040 if the world meets the Paris climate goals, according to the International Energy Agency.
Yet most of the increase in supply this decade is set to come from Indonesia, a market overwhelmingly powered by coal-fired electricity where Chinese companies are building nickel processing projects.
That has prompted a race to secure new sources of supply as companies in rich nations are forced to drastically reduce their carbon footprints.
Some of these mining operations are trying to position themselves as “green” options, using hydropower for electricity and disposing of waste sensibly. I imagine that’s a big selling point. You don’t want your eco vehicle to be coal-powered.
Also on the rise is steel production positioning itself as sustainable, as the Wall Street Journal reports:
The steel industry is one of the world’s biggest emitters of carbon dioxide, and the auto sector is one of the largest users of steel. Steelmakers are seeking ways to produce their steel more cleanly. Auto makers—pushed by regulators, investors and climate-conscious customers—are joining that search.
European car makers and steelmakers are moving faster to develop and use lower-carbon steel, analysts say. A European Union climate plan, called the Green Deal, mandates that the bloc’s manufacturers—including their supply chains—become carbon-neutral by 2050.
Earlier this month, Daimler AG’s Mercedes-Benz signed a deal with Swedish steelmaker SSAB SSAAY 0.19% AB, whose Hybrit unit will produce low-carbon steel for the auto company beginning next year. The agreement is part of Mercedes’s effort to make its entire auto fleet carbon-neutral by 2039. Volvo Cars is already sourcing steel from Hybrit, and BMW’s parent company is investing in a separate, low-carbon steelmaking startup in the U.S.
The auto industry is so very much focused on image and reputation, which I think is helping here, for once.
Let us celebrate this weekend’s race by remembering one of McLaren’s hits. From the BBC on September 13, 2007:
McLaren have been stripped of their points in the 2007 Formula One constructors’ championship after the outcome of the “spygate” row.
The team were also fined a record $100m (£49.2m), which includes any prize and television money they would have earned from the constructors’ championship.
But drivers Lewis Hamilton and Fernando Alonso can keep their points.
The team must also prove there is no Ferrari “intellectual property” in their cars next year before racing.
I am trying to find out if the 1980s mountain bike with flat tires (and roller cam brakes!) that my neighbors have been letting sit outside gathering rust is something they want to keep, or if it’s a restoration project waiting to happen. Maybe I’ll fix it up for them? Maybe I need another hobby?