What’s going on?
Even more carmakers announced this week that they were cutting production on the back of the global chip shortage, but hey – at least you’ll finally be able to get a parking space.
What does this mean?
The chip shortage has been haunting car firms this year: they reportedly pay less than other chip-dependent companies, which sends them to the back of a very long queue. That might be why Britain’s Jaguar Land Rover warned on Tuesday that its car deliveries would be 50% lower than expected this quarter, while Germany’s Mercedes-Benz – the world’s biggest luxury car brand – said its deliveries would be constrained for the next two. And it’s not just European companies: those warnings came just a day after China’s biggest carmaker – SAIC Motor – announced that it’d slashed its production plans by around 500,000 cars in the first half of 2021.
Why should I care?
For markets: This isn’t getting fixed fast.
Tata Motors – Jaguar Land Rover’s Indian parent company – saw its share price drop nearly 9% on Tuesday’s news, while Mercedes-Benz owner Daimler’s fell 4%. And this is just the start, with the shortage expected to cause issues until 2023. That could put carmakers seriously out of pocket: one consulting firm recently upped its estimate of lost carmaker revenue to $110 billion this year alone – and that was before the latest announcements.
Zooming out: Carmakers adapt to survive.
The chip crisis has forced car companies to adjust their strategies. Jaguar Land Rover, for one, is planning to focus production on more profitable models for as long as the shortage persists. Ford, meanwhile, has put more emphasis on its finance business, which lends customers money to buy pre-owned vehicles. Buyers, after all, are turning to second-hand cars in the face of a lower supply of new ones, driving up their prices at a record rate.