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Lockdowns to limit the spread of COVID-19 in China, especially in Shanghai, disrupted the supply chains of vehicle makers, who were already dealing with a shortage of semiconductor chips.
Market projections became more uncertain after Russia invaded Ukraine, as the latter was a key supplier of wire harnesses for vehicles to several European automakers. The invasion also affected chipmakers in the US as Ukraine manufactures gases such as neon which are used in lasers to produce the chips. Sanctions on Russia hit hard as over January to May, the region's vehicle sales sank 52% year on year to 318,114 units, data from the Association of European Businesses showed.
Rising raw material costs are hitting electric vehicles, which will push EV retail prices higher.
The Platts seaborne lithium carbonate and lithium hydroxide assessments jumped 115.9% and 139.4%, respectively, since the beginning of 2022 to $73,000/mt CIF North Asia and $75,900/mt CIF North Asia June 22, S&P Global Commodity Insights data showed.
Market uncertainty is likely to cause greater reliance on contracted volumes, which could prolong future contract discussions and increase protection of supply chains.
Forward gear: End of lockdown in Shanghai to mend supply chains Reverse gear: Vehicle retail prices could exceed disposable incomes
Vehicle manufacturers are struggling to restore normal operations. Along with a likelihood that the war in Ukraine will not end anytime soon, the emergence of a bearish factor which could hit global economies could result in a recession never encountered before.
"For many countries, recession will be hard to avoid," World Bank President David Malpass said June 7. "Even if a global recession is averted, the pain of stagflation could persist for several years—unless major supply increases are set in motion."
Even though demand for new vehicles is strong, prices for these vehicles are rising and may well put them outside the comfortable price range for consumers whose earning power has been shrunk by at least two years of COVID-19 and their effects, notwithstanding inflation. Is it any wonder that stagflation is on the lips of economists and soothsayers?
Moreover, growing food protectionism could very well lead to an obvious choice of either filling up stomachs or gas tanks or charging up an EV battery.
Vehicle inventories in the US remained tight as production struggled to recover from semiconductor shortages and other logistical challenges that began in the first half of 2021.
Although vehicles at dealership lots will command record transaction prices, the impact of rising interest rates may curb this trend.
Hot-rolled coil prices have been volatile since they touched the $1,500/st mark, assessed by S&P Global for its daily Platts TSI US hot-rolled coil index at the start of 2022.
New car registrations in the European Union dropped 13.7% to 3.72 million units over January-May, data from European Automobile Manufacturers Association showed, as semiconductor shortages negatively affected car sales across the region.
For May alone, passenger car registrations fell 11.2% year on year to 791,546 units. Consumers in the region came under increasing pressure from rising inflation.
Russia's invasion of Ukraine compounded the bearish market, along with an impact on energy. Due to the uncertainties, EU vehicle makers who were able to recover quickly from the initial impacts could face declines in the near term. EU electric vehicle makers faced surging battery material costs.
China's vehicle production sank 12.6% year on year to 1.86 million units in May as lockdowns in Shanghai disrupted vital supply chains, data from the China Association of Automobile Manufacturers showed.
But the country's new energy vehicle production in May reached 466,000 units, up 113.9% on the year and 49.5% on the month.
China's automobile industry is expected to reach its full-year target, as domestic producers ramped up efforts to return production back to normal, CAAM said.
Indian vehicle production stood at 1.97 million units in May, up from 1.89 million units in April and 806,755 units in may 2021, data from the Society of Indian Automobile Manufacturers showed. However, as 2020 and 2021 were years when lockdowns took place to limit the spread of COVID-19, data from 2019 was viewed as better comparison. In this case, 2.42 million units were produced in May 2019, so May 2022 was 18.6% lower than the pre-COVID-19 level.
As of May, the Indian market had not recovered from the impact of COVID-19. The Federation of Automobile Dealers Associations is taking a cautious stance regarding any recovery in vehicle sales in the near term.
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