A small supply problem causing big issues for automotive manufacturers

Comparing the number of cars produced in April 2021 to those produced in April 2020 is a pointless exercise. I am sure we all remember (and have possibly tried to forget) the numbers flying around at this time last year but just to refresh your memory, the UK produced 197 cars in total in April 2020 as the global pandemic almost stopped production entirely. What is more meaningful at the moment is to look at the numbers on a month by month basis and this shows the extent of the supply chain problems that the industry is currently facing. 

Month on month production slows for the first time in 4 months

From December through to March, we have seen a steady increase in car production every single month but in April the lack of components, particularly semi-conductors, has resulted in Mini and Jaguar Land Rover having to temporarily reduce production; and many manufacturers continue to either slow production or rationalise portfolios to focus on their more profitable models. This is causing significant delays to lead times for new vehicles, which is not what the industry needs as demand is growing.

Used car registrations showing demand is high

What seems like a small supply issue is having an acute concertina effect on the whole car industry, as the limited availability of new cars is causing significant uplift in demand for used cars and therefore prices – showing that consumers are not willing to wait for prolonged periods for a new vehicle. With one of the impacts of COVID being downsizing and also reductions in the numbers of cars owned by family units, this may mean OEMs may miss the demand bubble that has built up during lockdown. 

The knock-on impact on the electric market

If the supply issues continue over the longer term; it will become increasingly difficult for the UK to meet ambitious targets to transition to zero carbon vehicles and also lower emission hybrids. 

Although the number of new registrations for electric vehicles continues to rise, it still only equates to 10 per cent of the market, demonstrating there is a long way to go; and the incremental cost over ICEs could be holding back growth. A lot rides on achieving price parity, but the level of innovation that goes into EVs and demand for key elements, such as lithium is likely to keep the price point high for some time yet. The Government may have to up the level of support it offers to those looking to change to make it more attractive.

The future

So, are EVs really the way to go? Mining finite resources to make a lithium battery and then disposing of it ultimately has a negative impact on the environment, so are we just swapping one pollutant for another? Maybe the real focus needs to address the future of mobility and how we reduce the number of journeys we make entirely. The COVID pandemic has shown that many can survive without the need to drive to offices, perhaps this be the beginning of the end of car ownership as we know it? 

For further information, please contact Richard Bartlett-Rawlings