Auto Industry Faces Haze, Electric Car Costs Soar
Spain's "Notice" website recently reported that two years after the outbreak of the epidemic, the crisis in the automotive industry has not only not been resolved, but may also be exacerbated by new factors in recent months. China's recent lockdowns and shortages of key components have exacerbated a supply chain crisis that has impacted production, while the industry faces a price spike once in decades.
"We're still at the peak of the core shortage. I hope to start easing by next year, but we're still facing a fundamental shortage in 2023," said Oliver Zipser, chief financial officer of Volkswagen Group, BMW AG. It is even more pessimistic, saying that normal production will not be fully restored until 2024.
The chip shortage was just the beginning of a crisis that continues to this day. Automakers are also now facing shortages of other parts, such as cables, which account for most of their production in Ukraine, where factories were shut down by the war. The same goes for Russian factories, though sanctions imposed by Western countries are to blame, including a ban on semiconductor exports to Russia.
The auto industry is facing a cloud, and investors are pulling out. Shares of auto companies fell along with the market, and more sharply, amid volatility caused by the Russia-Ukraine conflict. The Euro Stoxx Auto & Parts index is down nearly 16% this year, while the Euro Stoxx 600 is just over 5%. Shares in Renault, which does a lot of business in Russia, have tumbled more than 30 percent since January, while U.S. shares of Ford and General Motors have also tumbled.
Throughout 2021, a boom in electric vehicles has driven automakers' stock gains. However, this trend has been interrupted. The auto industry is bearing another soaring cost - the price of lithium. eToro trading platform analyst Ben Lederer explained that in the past year, "demand for electric vehicle batteries has outstripped supply from major producers in Australia and Chile" and lithium prices have soared 450%. Electric vehicle batteries account for 70% of lithium demand, and the average battery now costs about $9,000, 20% more than the cost of a car.
Similar to lithium, nickel, which is needed to produce electric vehicles, has doubled in price in the past year. The aluminium needed to make any car is also up 40% from a year ago. In addition, it is now more expensive to keep factories and logistics running due to energy inflation.
The report believes that rising costs cannot be made up for by higher sales. In addition to falling production due to supply chain issues, the consumer side is also threatened by the risk of an economic slowdown and higher prices for fuels in particular. As a result, demand in China, the largest auto market, fell by nearly 12% in March, while sales in Russia plunged 63%, according to the European Business Association. In response to this situation, price increases are imperative. Some EV makers, such as Tesla and China's NIO and Xpeng, have already taken this decision.