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Auto demand levels remain depressed on chip famine alongside race between vaccine & variants; 2022 Light Vehicle demand set to post 82.4 million (+3.7%)

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Semiconductor shortages and wider supply chain disruptions expected to linger until 2023

IHS Markit forecasts new light vehicle sales of nearly 82.4 million globally in 2022, up 3.7%. IHS Markit projects the industry will finish out 2021 with nearly 79.4 million light vehicles sold, and industry demand levels will continue to be restrained next year as the semiconductor supply chain remains challenged. Tentative demand recovery will continue across most regions, assuming the ongoing availability of effective vaccines and apart from any major impacts from the Omicron variant.

Full year 2021 sales are expected to be up just 2.9% from the levels achieved in 2020. IHS Markit remains cautious on recovery prospects, as the global auto industry grapples with this "perfect storm" of unprecedented circumstances. Depressed vehicle output levels are expected to impact vehicle lead times for some time, pressuring depleted inventories and delaying fulfillment of prevailing order levels.

"The path of the pandemic remains an important driver of the 2022 auto demand cycle, especially the "race" between vaccine and variants. Concerns remain as winter arrives for Northern Hemisphere nations, and the emergence of the Omicron variant represents a worrying development," said Colin Couchman, executive director, global light vehicle forecasting, IHS Markit.

Most regions face limited recovery prospects on supply chain challenges and potential further COVID-19 flare-ups

The European auto industry looks set for a bleak mid-winter as widening virus concerns combine with ongoing supply chain woes, with concerns for German-based production. The 2021 Western and Central European demand forecast foresees 13.9 million units, just scraping into growth territory, up 0.2% y/y. 2022 demand is set at 15.0m units (+7.8%), according to IHS Markit.

"European car consumers are expected to hunker down for a second winter of COVID-19, but the new year might struggle to deliver meaningful improvement to new car sales levels," said Couchman.

Looking at 2022, US sales volumes are expected to reach nearly 15.5 million units, up an estimated 2.6% from the projected 2021 level of approximately 15.1 million units. "For 2022, the pace of sales is expected to quicken in the second half of the year. Given current inventory conditions, it's difficult to project significant demand recovery in the first half of 2022. But we expect to exit 2022 with a pace of sales more recognizable to pre-COVID levels, setting the stage for better volume outlooks into 2023 and 2024," according to Chris Hopson, manager, North American light vehicle sales forecast, IHS Markit.

In Mainland China—for 2021, IHS Markit analysts foresee the market down by 1% y/y, to 23.4 million units, as supply chain shortages choke off market growth. Near-term risks are balanced, and 2022 is currently set at 24.2 million (+3.3% y/y), with more meaningful recovery expected for 2023—back above pre-crisis levels to 26.9 million, up by 11.3% y/y.

Production expected to recover slowly through 2022

Global light vehicle production in 2021 is expected to finish at 75.5 million units, a paltry 1.2% improvement over 2020 levels.

For 2022, IHS Markit forecasts a rebound in light vehicle production of 9.0 percent, to 82.3 million units. The outlook will continue to be characterized by the availability of automotive-grade chips, at least until 2023. The balance of incremental capacity gains within the semiconductor sector, heightened 'chips-per-vehicle' requirements and robust non-automotive chip demand all feature in this assessment.

"Overall, while manufacturing operations in most regions are expected to improve, capacity constraints within the semiconductor supply chain remain the single most influential feature of the forecast. As the semiconductor tide recedes, will this expose further risks to the auto recovery? Threats elsewhere within the supply chain could become more apparent as chip supplies improve, notably, logistics, worker related issues, and key raw materials shortages," said Mark Fulthorpe, executive director of light vehicle production forecasts at IHS Markit.

In Greater China, IHS Markit forecasts modest growth for 2022 of 1.6 percent, to 24.3 million units. Europe is expected to produce 18.5 million units in 2022, up from an estimated 15.7 million this year. For the North American region, momentum is improving heading into 2022, though our outlook based on current forecasts remains at nearly 15.2 million units; this reflects growth of just over 2.2 million units year over year. A more normalized supply chain is forecast to support vehicle output levels of 90.6 million units for 2023, a further 10% y/y increase, and comfortably above pre-pandemic output levels of 2019.

Electrification remains a growing dynamic—2021 has seen an "arms race" of ambition as OEMs declare electrification targets for coming 5-15 years

Recent months have witnessed an unprecedented flurry of OEM announcements on electrification ambitions for the coming 5-15 years. Electric vehicles are fast evolving from a compliance side hustle into fully fledged core offerings for many OEMs. At COP26 earlier this year, policymakers and regulators also shared their visions for a greener future, including the US, the EU and the UK. Transformational change is firmly on the agenda and making sense of this arms race of ambition represents an ongoing challenge.

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