The global automobile production was ranked as the worst-hit industry due to supply problems during the pandemic in 2021. But that’s not fazing the trading community — on the contrary, increased volatility makes the automotive market a very interesting playground.
Let’s check what happened to the automotive industry in 2021, how it’s connected with semiconductors production, and what the prospects for 2022 are.
What was 2021 like for automakers?
The industry crisis started off in 2020: in addition to disrupting goods transportation routes due to lockdowns and export restrictions, the auto industry has been hit hard by a semiconductors shortage.
Semiconductors (also known as microchips or just chips) are integral components of almost every digital electronic device. Chips contain silicon and are critical for creating integrated circuits in all sorts of electronics: from toasters to space rockets.
What caused the chip shortage?
The automotive industry is experiencing more semiconductor shortages than other industries — and here’s why:
- In 2020, the overall consumer demand for cars had declined due to quarantine. Car manufacturers had to suspend production and cancel chip orders;
- The delta and omicron variants have risen, leading to the new lockdowns in Malaysia and other Southeast Asian countries known as the main chip manufacturing hubs. Key chip suppliers for auto giants — Infineon Technologies AG, NXP Semiconductors NV, and STMicroelectronics NV — have suspended operations, causing a shortage of highly-demanded components.
- Chip manufacturers had to shift their focus to other industries: computer equipment, mobile devices, home appliances, and other products with increased pandemic demand.
- Since car manufacturers canceled chip orders and suppliers turned to other markets, automakers found themselves lower on the priority list.
How did the crisis affect automakers?
Large automakers such as Volkswagen and General Motors had to cut production, and Ford shut down several factories. This led to huge losses: allegedly, the semiconductor chip shortage cost the global automotive industry $210 billion in revenue in 2021.
Despite the massive production drawdown, some of the losses were offset by:
- Steady consumer demand. During the pandemic, people have accumulated money and shown a great interest in buying cars.
- High car prices. In 2021, cars were bought at record high prices, which ensured high profits for manufacturing companies.
- Investors pursuing longer-term trends. They understand that the crisis is temporary and roughly know when the chip supply will recover to an acceptable level.
The historical stock prices video below shows how the major automakers’ stock prices reacted to the Covid challenges.
Car manufacturers historical data overview, 2020 – 2021
Best auto stocks 2021*
| Ford Motor Company F +114.83%1Y change | Tesla, Inc.TSLA +91.21%1Y change | Daimler AG DAI +44.62%1Y change |
| General Motors Company GM +34.84%1Y change | Toyota TM +32.74%1Y change | Bayerische Motoren Werke AG BMW +16.28%1Y change |
When will the global chip shortage end?
It’s hard to tell. Nvidia believes that the problem will be resolved after the first quarter of 2022. Intel expects the chip shortage to extend well into 2022. In order to meet the emerging demand for semiconductors, it is necessary to build large production facilities. It will cost billions of dollars and take years.
Some semiconductor manufacturers are already increasing the pace: for example, Intel, Samsung, and Nvidia have announced the construction of new plants. All in all, the industry is booming — watch the race of semiconductor manufacturers in the historical data overview video below.
Semiconductor manufacturers historical data overview, 2017 – 2021
As a result, investors’ interest in semiconductor companies has grown — especially in those with factories in South Asia, where production costs are lower.
Best semiconductor stocks 2021
| NVIDIA NVDA +145.04%1Y change | Applied Materials AMAT +76.48%1Y change | Advanced Micro Devices, Inc. AMD +72.44%1Y change |
| KLA-Tencor KLAC +60.42%1Y change | Lam Research LRCX +43.58%1Y change | Intel TM -0.27%1Y change |
Conclusion
2021 was a tough one for the auto industry, but large automakers’ stocks still rallied despite the market challenges.
The global semiconductors shortage was the main problem for the industry. Amid falling demand in 2020, many automakers have lost contracts with chip manufacturers and ended up at the end of the waiting list for quite a scarce commodity.
The crisis is expected to drag on until the 2nd half of 2022 – 2023, but automakers partially compensate for the losses due to high demand and high car prices. As for semiconductor manufacturers, they have a busy time trying to saturate the increasing demand for microchips while getting a lot of investment money.
*Please note that past performance is not an indication of future performance.
