Posted on 27 Apr 2021
Like their counterparts worldwide, carmakers in China are struggling with the shortage of automotive-use semiconductors, and with the chip shortage expected to be prolonged, fears are growing that production delays could undermine the strength of the country’s burgeoning market for New Energy Vehicles (NEVs).
Chinese suppliers of automotive sheets are becoming jittery too, noting that steel-consuming sectors such as automobile manufacturing have recovered from the coronavirus blow but that semiconductor production has failed to keep pace.
The sales and production of passenger cars in China during this year’s first quarter declined from that in Q1 2019, even though actual consumption is now in smooth recovery, the China Association of Automobile Manufacturers (CAAM) observed in its release on April 12. Data for Q1 last year is skewed by the pandemic, thus, being of little value for comparison, Mysteel Global notes.
The production of passenger vehicles in Q1 this year declined 5.2% from two years ago to nearly 5 million units, while sales also decreased though at the slower pace of 3.6% to 5.1 million units, CAAM’s data showed. CAAM suggested the dip in auto production might be due to insufficient supplies of auto chips and warned that the shortage could worsen in the second quarter.
A source in the integrated circuit business in Northwest China’s Shaanxi province was more pessimistic, expecting the shortage to “persist into the third quarter at least. This is a global and complex issue, not only for the auto industry, but also the electronics sector,” he stated.
China’s Ministry of Industry and Information Technology announced earlier this month that it had already begun bolstering communication and cooperation among semiconductors and car makers, and pledged that the ministry would further accelerate the development of a leading-edge integrated circuit and software industry in China to free the domestic carmakers from the hindrance. Chinese market watchers, however, fear that achieving these goals would take long.
The auto industry’s woes in China are being replicated worldwide. In Singapore for example, dealers handling foreign car brands, be they Japanese and European, are feeling the bite of the chips supply shortages.
“Some models are now in a limited choice of colours, others may be taking longer to ship to Singapore from assembly plants in Europe and Japan, as there has been a shortage of auto semiconductors globally,” a dealer in Singapore said, though for now this has not been affecting sales much.
The Shaanxi source pointed out that the global virus situation had resulted in declines in chip production while the demand for high-end semiconductors used for computers and mobile phones surged, as many countries’ economies have been recovering from the pandemic. “In the meantime, the speed of the recovery of the auto sector has been faster than expected,” he told Mysteel Global.
“Most orders for components from car manufacturers are scheduled to arrive just-in-time (but) chip producers could not adjust their production schedules as fast. Besides, the profits that circuit fabricators earn from making high-end electronics chips are much higher than from making chips for automotive applications,” he added.
“We had foreseen that there would have been a shortage of chips, but coming up with a quick solution was a major challenge,” he maintained.
For automakers in China, the bottleneck in IC supplies probably could not have come at a worse time, as consumers – with strong central and regional government support and generous incentives – have embraced NEVs probably much faster than in any other markets worldwide. CAAM data shows that within the NEV category, domestic production of electric vehicles surged impressively by 360% on year to 533,000 units over January-March, while sales also soared 310% on year to 515,000 units.
True, the on-year comparison has been compromised by the plunge in consumer spending during Q1 2020 due to the COVID-19, but the trend in acceptance of NEVs was unmistakeable well prior to that, and since 2015, China has become the world’s leader in NEV sales and utilization, though the number of eco-friendly vehicles on China’s roads are still low in proportion to total vehicle registrations, Mysteel Global notes.
Caption: An IC on an expo of semi-conductors in Shanghai
Source: Xinhua.net
China NEV sales in 2020
|
’000 units |
Dec |
Jan-Dec |
||||||
|
Sales |
YoY (%) |
Production |
YoY (%) |
Sales |
YoY (%) |
Production |
YoY (%) |
|
|
Auto |
2,831 |
6.4 |
2,840 |
5.7 |
25,311 |
-1.9 |
25,225 |
-2 |
|
NEVs |
248 |
49.5 |
235 |
55.7 |
1,367 |
10.9 |
1,366 |
7.5 |
Source: CAAM
The frustration for China’s makers of NEVs including electric vehicles is that “an electric passenger car uses more chips than a conventional internal combustion engine car, and domestic demand for electric cars is obviously accelerating,” a Shanghai-based source stated. The implication is that the shortage of chips will hamper production of NEVs, slow delivery times, and lead consumer interest in purchasing them to fade.
The scenario is causing anxiety not only to the automakers but also to the others that are in China’s automotive supply chain such as auto sheet producers.
An official with a steelmaker in East China’s Shandong province told Mysteel Global that he was afraid of further declines in cold-rolled coil (CRC) orders due to the slowing operation among car manufacturers, noting that CRC prices have already softened dramatically, against the trend of many other finished steel, as demand is perceived by the market as being under pressure.
As of April 22, the price spread between SPCC 1mm CRC and Q235 4.75mm hot-rolled coil in China, according to Mysteel’s assessment, was Yuan 400/tonne ($61.6/t), or having shrunk from the Yuan 1,125/t by the end of last year.
Edwin Basson, director general of the World Steel Association (WSA), also acknowledged the supply shortage of steel and auto chips in the whole value chain for autos globally, though as of mid-April, the association has not seen any serious impact on auto manufacturing directly attributed to chips.
In WSA’s Short Range Outlook (SRO) released on April 15, the WSA said that 2021, the global automotive sector is expected to recover strongly, which will be “driven by pent-up demand, increased use of personal transportation due to safety concerns, and increased household cash savings”, and the revival is expected to “be particularly strong in the US, where the production level in 2021 will exceed the 2019 level. The global automotive industry is expected to return to the 2019 level in 2022”.
Similar to China, in the EU the shares of the auto industry occupied by hybrid and electric cars, the two core models of NEVs, posted a substantial increase in their shares to 11.9% and 10.5% respectively for 2020, up from the 5.7% and 3% respectively in 2019, WSA commented in its SRO.
Not everyone has been suffering from the chips supply shortages, though, Mysteel Global noted. A Taiwan-headquartered chips producer has seen its bookings doubled or tripled, so has its stocks prices, and its employees have been working overtime on most of Saturdays now so as to fulfil the contracts, a Singapore-based market commented.
This has also been a wake-up call for China to deal with the matter as soon as it can, though it is fully aware that there is no short-time solution, but it is “better late than never”, as with its pledge to realize carbon peak by 2030 and carbon neutral by 2060, NEVs with electric cars in particular will be essential, especially for a country now with the annual car sales at over 25 million units.
Basson commented at the recent press conference that steel and chips shortage in the auto industry may also trigger some manufacturing sectors with a global value chain to review the possibility of turning towards regionalization. The COVID-19 may well propel the global manufacturing sectors to enhance the sustainability in its parts supplies, and that may lead to a series of serious and fundamental changes globally.
Source:Mysteel Global
