Car production recovery is being strangled by global supply shortages


UK car manufacturing would be recovering from the coronavirus pandemic much better if it were not for global supply shortages caused by the pandemic, industry bosses have said this morning.

Car production rose dramatically in May, according to the latest figures released today by the Society of Motor Manufacturers and Traders (SMMT) but still faces ‘ongoing Covid-related issues’, the trade body warned. 

Some 54,962 cars rolled off production lines compared to just 5,314 a year ago, when coronavirus halted manufacturing. 

Outputs, however, were still far below pre-pandemic levels, down 52.6 per cent on the same month in 2019 as the supply of semiconductor chips used in the latest models, which has brought assembly lines almost to a grinding halt.

UK car manufacturing’s recovery under threat: The SMMT said pandemic-related parts supply issues – notably semiconductor chips – are blocking the sector from bouncing back from its worst year for outputs since 1984

The car manufacturing sector is desperate to bounce back from the impact of the pandemic over the last 16 months, which saw outputs fall by almost a third to less than 1 million vehicles in 2020 – the biggest year-on-year plunge since the financial crisis and the lowest total output since 1984. 

So far this year UK factories have turned out 429,826 cars, up some 105,063 units on last year, the majority (95.3 per cent) of the additional volume built for export, but overall output remains down 22.9 per cent on the same five-month period in 2019. 

The SMMT said this is ‘reflective of the scale of the challenge facing the industry’ as it seeks to recover from the pandemic while grappling with global supply shortages, notably of semiconductors. 

When compared with a five-year average, production was down a massive 58 per cent for May and more than a third (36.3 per cent) off the pace in the opening five months of the year.

Mike Hawes, SMMT Chief Executive, said that May’s figures ‘continue to look inflated’ when compared to last year’s near total standstill of production lines. 

‘The recovery of car production is still massively challenged here and abroad by global supply shortages, particularly semiconductors,’ he explained. 

‘If the UK is to remain competitive, therefore, it must ensure it has a globally attractive policy framework for both vehicle production and the supply chain.’ 

Richard Peberdy, UK head of automotive at KPMG UK, explained the reason behind the supply shortage issues felt by auto makers. 

‘Global inflationary pressures affecting materials like copper, steel and oil are adding to the well reported issues surrounding semiconductor supply, which continue to clip UK automotive output,’ he told This is Money. 

‘And while the Covid-19 picture is improving, new outbreaks have forced some port shutdowns in China, creating new blockages in the global supply chain.

‘Inventories have fallen to very low levels as production remains stifled and demand recovers.’

Some 54,962 cars rolled off production lines compared to just 5,314 a year ago, when coronavirus halted manufacturing. Despite that, outputs are over 50% behind the five-year May average, says the SMMT

Some 54,962 cars rolled off production lines compared to just 5,314 a year ago, when coronavirus halted manufacturing. Despite that, outputs are over 50% behind the five-year May average, says the SMMT

Today's stats reveal that UK car production continues to be export-led, with 83.6% of all cars built so far in 2021 shipped overseas. Some 56% go to EU nations

Today’s stats reveal that UK car production continues to be export-led, with 83.6% of all cars built so far in 2021 shipped overseas. Some 56% go to EU nations

One glimmer of positivity is the rise in production of electrified vehicles in the UK.

Last month, almost one in five (19.2 per cent) of all UK car output was battery electric and hybrid cars.

The same one-in-five share of UK-built vehicles being electrified is consistent for the year to date.

However, the share drops to one in 16 for pure battery electric vehicles, further highlighting the scale of transformation ahead and the importance of creating the right conditions to ensure sector competitiveness in the UK.

This includes the development of UK-based gigafactories to supply batteries to vehicle makers in the country. 

Earlier this month it was reported that the Government is currently locked in talks with six different firms about the creation of new battery-production sites – one of them being Britishvolt, which will have the UK’s first gigafactory in Blyth, Northumberland, operational by 2023.

Hawes said that ‘accelerating zero emission car production’ is a focal part of the sector’s future strategy, adding that there needs to be a push for increased ‘investment in R&D, charging infrastructure and the market to ensure we can deliver the net zero future society demands’.  

Mike Hawes, SMMT Chief Executive, said that May’s figures 'continue to look inflated' when compared to last year’s near total standstill of production lines

Mike Hawes, SMMT Chief Executive, said that May’s figures ‘continue to look inflated’ when compared to last year’s near total standstill of production lines

Today’s stats reveal that UK car production continues to be export-led, with 83.6 per cent of all cars built so far in 2021 shipped overseas. 

The European Union remains by far the most important destination for British cars, taking 56 per cent of all exports, followed by the US (18.3 per cent) and China (7.3 per cent).

Commenting on the May production figures, Jim Holder, editorial director at What Car?, said the stats were ‘encouraging’, in particular as electric vehicle production continues to increase. But he said there were some obvious pressing matters. 

‘A more immediate concern for the industry remains the current microchip or semiconductor shortage that is impacting both vehicle supply and trim levels, which in return is affecting whether buyers opt for new or used models,’ he said.

‘Our own research of 1,149 in-market used buyers found 29 per cent were originally in the new car market, but have switched to the used market in search for lower prices and better stock availability.

‘The ongoing shortage has the potential to match Covid-19 for its disruption and intensity, as there is no quick or easy fix in sight and highlights the weaknesses of even the most robust global supply chains.’

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