Another work week, another edition of Transmission. Here’s what I got cookin’ for you today:
- Chip shortage adding to already low inventory volumes
- A changing landscape: the rise of consumer tech giants among traditional automakers
- Industry News
- Est. read: 4 minutes
Chip shortage adding to already low inventory volumes
In the beginning of December, Volkswagen brought to light what was viewed at the time as a minor chip shortage. VW predicted that the shortage would run into Q1 of 2021. Chinese carmaker BYD brushed off the chip concern, saying that companies had enough margin for external supply. Fast forward to the second week of the new year and that problem has grown, affecting OEMs everywhere, not just Volkswagen.
Semiconductor chips are used throughout both ICE vehicles and EVs, specifically in infotainment systems, on-display entertainment, and other applications revolving battery management systems.
Chipmakers including Infineon, Texas Instruments, and Renesas, are reserving supply for tech groups interested in producing electronics. “The problem is that we are lower down the chain than companies like Apple and HP, ” said one executive from an unnamed supplier. “The auto sector doesn’t pay as much for its semiconductors.”
Silicon foundries supplying chipmakers with materials for producing chips are overbooked amidst heightened demand from both the automotive and electronics industries. Renesas said it’s managed to boost production to address the increased demand, but according to industry officials, a sharp rise in materials costs for Taiwanese suppliers is causing the bottleneck.
Automakers across the industry are experiencing production disruptions and, as a response, are prioritizing production of higher-profit vehicles. Nissan and Honda are both trimming down Q1 production. Ford has halted production for a week at its Louisville assembly plant and moved up a scheduled week off to make up for lost time. Fiat Chrysler has decided to delay the restart of production for its plant in Toluca, Mexico and idle production at its plant in Ontario, where the automaker builds the Dodge Challenger and Charger. Both plants will resume production at the start of February. Daimler and Renault, a French car manufacturer, have both reported that their suppliers are struggling to secure chips as well.
The Gist: It doesn’t look like this shortage is going away anytime soon. Industry insiders have admitted that automakers could reduce production by 10-20% a week from February if “fears over shortages are realized.” For now, OEMs are remaining flexible with production schedules and are working closely with suppliers for viable solutions. Don’t be surprised if this shortage continues through the next few months.
(Chart: Freightwaves SONAR: Movement of finished vehicles and components (Blue); Retail Sales of motor vehicles and parts (Orange))
Here’s the bigger issue. Dealerships across the nation are already feeling the pressure of low inventory levels. They can’t sell what they don’t have. Constrained inventories were a result of shutdowns enforced by COVID protocols. Throw this semiconductor bottleneck in the mix and the game of “catch up” just got worse. Auto sales, both new and used, combined with aftermarket sales, are soaring ever since lockdown mandates were lifted. But production hasn’t been able to keep up with demand.
A changing landscape: the rise of consumer tech giants among traditional automakers
Today it seems as if digitization is affecting every way of life. Dealerships are moving the buying process online. OEMs are developing apps that allow drivers to manage their vehicle by gathering information related to performance and maintenance. Digitization has now reached a tipping point such that consumer tech giants are the ones to watch as the automotive industry undergoes significant transformation with the introduction of EVs, autonomous vehicles, and new battery breakthroughs.
A few weeks ago, I discussed Apple’s intentions of producing its own autonomous vehicle deemed “Project Titan”. Throughout the years, Project Titan has been at the forefront of speculation from critics, analysts, and officials across the entire automotive sector. It was launched in 2014, but then shelved so Apple could evaluate company goals. In 2018, Apple hired Doug Field, a former Tesla employee, to run Project Titan as Apple, once again, looked to put this venture front and center. And as of last Thursday, January 7th, CNBC reported that Apple has been in discussions with a variety of automakers, including Hyundai.
The market has been bullish about the idea of Apple creating its own self-driving car. Stocks for Luminar and Velodyne, two companies that make lidar sensors for autonomous vehicles, rose 27% and 23% respectively after Reuters reported that Apple was targeting to start production in 2024. While it may be a challenging road ahead, partnering with experienced automakers might be the best move for Apple. The Cupertino company has vast experience developing technology, specifically with batteries, sensory technology and cloud management while OEMs have the resources to build vehicles without Apple having to develop its own supply chain.
Outside of Apple, Amazon is another example of a big tech company trying to expand into the industry. Amazon has invested $700 million in Rivian, as opposed to manufacturing its own vehicle, and has been actively growing its logistics network capabilities. Its current focus is on transforming the delivery van by improving route efficiency and driver productivity.
The Gist: The auto industry has been dominated by traditional auto manufacturers. While consumer tech companies already have a hand in the automotive space, expect them to expand their ecosystems already in place. If the CEO of Volkswagen is taking Apple’s attempt at expanding into the industry very seriously, maybe we should too.
- Franz Fehrenbach, a supervisory board chairman of Bosch, has joined Akio Toyoda, Toyota’s President, in criticizing EVs. Fehrenbach argues that EVs create more CO2 pollution since a large portion of batteries are made in Asia using coal-powered plants. He also stated that manufacturing batteries consumes too much electricity and that infrastructure is currently lacking to support rapid adoption of EVs. In 2017, Bosch bought out Seeo Inc., a solid-state battery start up, with the intention to place more focus on battery development. In 2018, the company reversed its interest in EVs and divested its battery cell assets.
- As the modern car continuously receives added technology advancements in, there’s a growing trend of digitizing dashboards. Mercedes-Benz is looking to introduce what it calls a “Hyperscreen” in its new 2022 EQS model. The OLED screen is 53 inches long and was designed to not only look slick, but also enable users to easily navigate through the infotainment system.
- ICYMI: General Motors revamped its outdated logo last week which had been around for more than 50 years. It looks as if GM has aligned its new logo with its aim of pushing for an all-electric fleet by 2030. The vibrant blue tones symbolize the clean skies of a zero-emissions future and, if you look in the negative space of the “m”, you’ll notice what looks like the prongs of an electrical plug. With the updated logo comes an updated marketing strategy with focus on EVs as well. So far the logo has received mixed reviews from critics. What are your thoughts?
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