A shortage of materials, particularly in semiconductors, is creating a supply-demand mismatch in the European automotive sector that could last well into the first half of 2022. According to Euler Hermes, that creates a unique opportunity for automakers to raise prices by 3-6% after nearly 20 years. In the first six months of this year, the demand for new vehicles in Europe benefited from the progressive reopenings: new car registrations grew by 25,2% to almost 5,4 million cars (+1.354 million units) compared to the first half of 2020, with significant double-digit gains in most countries, especially in the top four markets (+14,9% in Germany, +28,9% in France, +51,4 .34,4% in Italy and +XNUMX% in Spain). This improvement is not yet sufficient to recover pre-crisis volumes, however it was sufficient to improve the business climate in the sector, as demonstrated by the Eurostat business surveys on factors limiting production. At the same time, this same survey also indicates a strong rebound in materials/equipment as a key factor limiting production. This is due to the shortage of semiconductors, due to the widespread adoption among automakers of just-in-time manufacturing processes dedicated to minimizing the storage of all types of inputs.
Both in April and in May, at the EU-27 level the production volume index for the entire automotive sector fell to its lowest monthly levels since the early 2010s, -3,4% and -7,8%, respectively, with most auto-producing countries contributing to the decline, including the major ones. In this context, the level of production reached in May is still well below the pre-crisis level for the EU (-23% compared to the 2019 average), with a strong blowback for established automakers (-33 % France, -30% Germany, -25% Spain and -10% Italy) compared to other car manufacturers such as the Czech Republic (-6%), Sweden (-6%) and Hungary (-5%).
Long-lasting shortages will maintain a supply-demand mismatch in Europe through H2022 XNUMX, as domestic demand fundamentals remain more short- to medium-term oriented. This is due to several reasons: some are directly related to the reopening, such as the boost in consumer confidence and the significant increase in savings accumulated by households. Others are specific factors supporting the purchase and/or renewal of vehicles, from the desire of families to be less exposed to subsidies to encourage the transition to electric cars, to the intensification of restrictions on the use of traditional cars powered by international burning and, later in 2022, the need for car rental companies to upgrade their fleets. At the same time, analysts do not expect exports to mitigate the supply-demand mismatch, as the US market is seeing stronger momentum (with vehicle sales already close to H2019 XNUMX levels), impacting automakers exporting to the US, especially German brands.
In this context, car prices are expected to rise by at least +4% in Germany, with the potential to exceed +10%. Spain and Italy could see increases between +2,4% and +5,8%, while France could see an increase between +0,8% and +5,0%. Unlike in the past, the automotive sector is now facing a unique supply situation: a very high level of orders, a very high capacity utilization, reflecting the adjustments made by the sector during the pandemic, and a very low level of inventories, all at a time when companies are facing a surge in commodity prices (rubber, copper, steel) and higher tariffs.
The potential increase in vehicle prices may differ slightly from country to country. In Germany, which accounts for almost half of the automotive sector (44% of production and 38% of car registrations), analysts expect an increase in car prices of at least +4%, but with the potential to exceed +10%. . Spain and Italy, which both account for 7% of automotive sector output, are expected to increase car prices by between +2,4% and +5,8%. France, whose prices have historically been more stable, is expected to see its car price rise between +0,8% and +5,0%.
