‘Chips and Ships’ Issues To Persist Into 2022: Which EV Companies and Automakers Will Come Out on Top?
The “chip and ships” issues that have plagued the global auto industry in 2021 appear to have no end in sight and will persist well into 2022, according to analysts. But some automakers — of both traditional and electric vehicles (EVs) — are better positioned than others in terms of navigating semiconductor shortages and supply chain issues.
To address chip shortages, auto manufacturers are operating fewer shifts or temporarily idling certain factories, partially assembling vehicles (minus the parts that require semiconductors) as they await the delivery of additional supplies, and prioritizing the production of their more profitable vehicle models over others, said Garrett Nelson — VP of equity research at CFRA Research — via a research note sent to GOBankingRates.
In terms of supply chain issues, companies are entering into agreements with additional suppliers, taking steps to vertically integrate their supply chains, and resorting to more expensive and unconventional transportation methods to help maintain production levels.
The aforementioned issues have in turn caused both new and used vehicle prices to surge to record highs as inventories hit record lows. And despite the steep drop in new vehicle sales volume since April, U.S. new vehicle inventories remain near record-low levels as supply has lagged sales rates.
Ford and Lucid Lead the Pack
Some automakers will fare better in 2022, Nelson wrote, adding that Ford is the most favorably positioned of the traditional automakers to navigate these challenges, while Lucid seems more favorably positioned among the EV pure plays.
Despite issues that plagued Ford in 2021, in late October the company cited a significant increase in semiconductor availability for the strength of its Q3 results, in which it posted greater than expected adjusted earnings per share.
“While the company’s language has been cautious, we believe that primarily reflects management’s desire to underpromise and overdeliver. Additionally, we point out that a fire at the chip factory of one of the company’s key suppliers in Japan had a dramatic impact on Ford’s production in the first half of 2021,” Nelson detailed. “With the plant having come back online and Ford taking steps to diversify its supply, we think the company is in much better shape than most competitors heading into 2022.”
Nelson adds that Ford is also the only remaining automaker that still reports U.S. sales volumes on a monthly basis, providing an important read-through into potential Q4 results, as the U.S. market accounts for the vast majority of Ford’s profits.
In terms of EVs, Nelson said that Lucid “stands out as a company that is likely to do a better job navigating near-term chip-shortage and supply-chain issues than others.”
Reasons given include the fact that Lucid is not yet producing at scale, and the company’s sales goals are both modest and achievable, at 20,000 vehicles in 2022.
“Additionally, it is only producing one model thus far (the Lucid Air) and all its vehicles are being produced at Lucid’s sole factory in Arizona, giving it a more concentrated geographic footprint than Tesla, for example, which is planning for a significant production increase in 2022 and will soon be manufacturing vehicles from factories located on three continents (up from two),” according to Nelson.
Tesla Continues to Expand
In terms of Tesla, CFRA estimates it will sell nearly 900,000 vehicles in 2021 (up from just under 500,000 in 2020) and production will soon commence at two large new factories located in Austin and Berlin, causing its volumes to increase to well over one million units, which could exacerbate these issues.
“While we think Tesla has done a remarkable job executing in the face of chip shortages and supply chain issues so far in 2021, there is evidence these challenges might start to catch up with it,” Nelson wrote. “In early October, CEO Elon Musk said, ‘If we had like five extra products, we would not change our vehicle output at all, because we’re just basically limited by multiple supply chain shortages… so it really wouldn’t matter if we had the Semi or Cybertruck or anything. We would not be able to make it.'”
Finally, another EV worth watching is Rivian, which might be more susceptible to chip shortages and supply chain issues than Lucid because it will soon be producing three vehicles — and its reservation count is almost triple that of Lucid’s — Nelson wrote.
CFRA recently raised its opinion on Rivian to Buy from Hold, citing the company having 71,000 preorders for the R1T and R1S, up from 55,400 at the end of October. This increase may reflect additional orders following the R1T being named MotorTrend’s 2022 Truck of the Year.
“The company also confirmed plans to build a second, larger plant (400K units annual capacity) starting next summer in Georgia and expand capacity at its Illinois plant (from 150K to 200K units),” Nelson wrote.
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