Ending the shortage of automotive semiconductors, but can Ford regroup? (NYSE:F)
For more than a year, the media has been jam-packed with reports of a “semiconductor shortage.” The main explanation for the shortage was a miscalculation by chipmakers that the raging COVID-19 pandemic in 2020 would not cause demand for chips that arose as a result of the work/study/stay-at-home edicts. House. This has led to increased demand for PCs, remote video conferencing, gaming stations, and server bandwidth, which has created demand for semiconductors for applications in the absence of automotive demand. Then a few months later, automotive demand resurfaced, impacting chipmakers.
While there have been irregularities in semiconductor production associated with COVID and shutdowns, which I discuss in a section below, much of the blame on poor US auto sales has attributed to the “semiconductor shortage”.
Impact of the “semiconductor shortage”
Ford (F) shipped 1,891,753 vehicles in the United States in 2021, down 7% from 2,034,708 in 2020, as shown in Table 1. The company’s shipment performance was among the worst builders.
General Motors (GM) fell 13%. This drop was misleading, however, as GM recalled more than 140,000 bolts for battery fire hazard in August 2021 and has closed its Orion assembly production plant since then. As a result, in 4Q2021, GM sold 437,358 vehicles in the United States, down 43% from the same period last year. Of these 437,358 vehicles, only 26 were electric vehicles.
For 2021, U.S. shipments increased only 3.4% year-over-year to 15.1 million units from 14.6 million in 2020. Sales in 2020 were also lower than in 2019, with year-on-year shipments falling 14.4% from 17.0 million in 2019.
Table 1 – Source: Cox Automotive
One of the causes of the drop in shipments has been attributed to the shortage of semiconductors, as noted above. Of more than 1.1 million vehicles estimated to have suffered production delays, Ford was the most affected with 324,616 delays, as shown in Table 2.
Automotive industry and consumer sentiment in the United States
However, the data indicates that this is not the case, but is directly related to US consumer sentiment, as shown in Chart 1. Consumer sentiment is an economic indicator that measures the degree of optimism among consumers about their finances and the state of the economy. In other words, if people feel rich, they will buy things like automobiles.
Chart 1 shows that consumer sentiment fell precipitously with the onset of the COVID pandemic, then began to rise until reaching a peak in April 2021, when it peaked in April 2021, linked to the euphoria over the lifting of sanctions as the pandemic slowed.
Consumer confidence fell sharply in early May as inflation soared and consumers braced for higher interest rates.
Why were ICE cars mainly affected?
I posed the question in a September 16, 2021 Seeking Alpha article titled “Tesla outperforms competition despite Covid and semiconductor shortage”, why are ICE vehicles primarily affected?
xEV (BEV + PHEV) shipments for 2021 vs. 2020 increased 96% in North America compared to total industry growth of only 3.4% for the US alone in Table 1 above.
According to our report titled “Global and China EV Batteries and Materials: Technology, Trends and Market Forecasts“, a cost analysis of comparably priced EVs versus ICEs shows that if we include batteries, the component costs of a VE are significantly higher for VE. Otherwise, the component costs are comparable.
This raises an important question. If there is a shortage of semiconductors for automobiles and EV automobiles use far more semiconductors than ICE automobiles, then why are ICE manufacturers closing factories and promoting EVs? Clearly, the Biden administration’s green policy, discussed in the Investor Takeaway section, plays an important role.
“Shortages” of the semiconductor industry
I have written many articles in Seeking Alpha trying to locate shorted semiconductors, as there are dozens of types, in major chip categories such as memory, microprocessors, microcontrollers, analog and discrete.
These articles were written without the cooperation of the car manufacturers, because after repeated calls to find out exactly which chips were shorted to identify the type and location, I received no response.
In the end, I identified microcontrollers as the main source of shortage, not necessarily due to chipmakers affected by covid brain fog, but an earthquake and a fire at a semiconductor factory in Japan.
I published my findings in a June 17, 2021 Seeking Alpha article titled “Microchip Technology: Benefiting From Strong Microcontroller Demand And Shortages”. I refer readers to the article and note the shortage:
“Significantly, an earthquake in February 2021 interrupted production located in Hitachinaka, Ibaraki Prefecture for a few days, reducing inventory. Then, on March 19, 2021, a fire broke out in building N3 of the Renesas (OTCPK:RNECF) component manufacturing site based in Ibaraki. The fire destroyed 23 pieces of semiconductor manufacturing equipment and contaminated more than 6,400 square feet of industrial production space. Production resumed to reach 100% capacity in mid-June. The Japanese chip manufacturing plant owned by Renesas Electronics Corp. accounts for 30% of the global market for microcontrollers used in cars.
Chart 2 shows unit shipments of all ICs, showing an increase in unit shipments (green bar) that began in July 2020, 18 months ago. The trendline shows growth. Of equal importance, Mom the changes peaked in July 2021 and have since declined except for a slight uptick in November 2021.
Chart 3 shows the same unit shipments as in Chart 4, but shows Annual changes (orange line) instead of MoM. Here we see that overall, year-on-year shipment growth peaked in June 2021 and fell steadily except for a slight uptick in December 2021.
This begs the question, along with the MoM data, why didn’t semiconductor manufacturers continue to ramp up production if there was a shortage of semiconductors.
The answer is simple. The peak in semiconductor shipments in June 2021 tells me that the semiconductor shortage has been over for at least six months.
Key takeaway for investors
My contention is that while a “semiconductor shortage” crippled automakers immediately after the pandemic, that shortage has been over for at least six months. The continued erosion of auto sales is due to the erosion of consumer sentiment associated with green policies.
I also argue that the ongoing “shortage” talks are the efforts of semiconductor makers to get government subsidies to build fabs in the US and the supply chain, like automobiles and consumer goods, in order to obtain tax credits and government incentives.
Indeed, Ford has verified my analyzes that the “semiconductor shortage” is being used as an excuse by creating two separate business lines, each reporting its own profits and losses, and CEO Jim Farley comments:
“The reality is that our legacy organization has held us back. We had to change. »
As a result of the split, according to the article, Ford expects to produce 2 million electric vehicles in 2026, compared to 600,000 electric vehicles planned for 2023. Ford expects a cost reduction of $3 billion, largely resulting from streamlining the company’s combustion engine car business. , centered on high-profile models like the Mustang coupe, Bronco SUV and F-150 pickup truck.
Ford announced in January 2020 that it was doubling the planned production capacity of its upcoming F-150 Lightning electric pickup and also tripling production of the Mustang Mach-E from last year.
Strict new EPA fuel efficiency standards will require automakers to achieve a fleet-wide average of around 40 mpg by 2026, which electric vehicles will help achieve.
Chart 4 shows that Ford also has higher quantitative search factor alpha ranks than TSLA, General Motors (GM), Tesla (TSLA), and Toyota (TM).
Chart 5 also shows Ford as a strong buy, ahead of GM and the other manufacturers in the chart.
Chart 6 shows the performance of Ford shares relative to US auto sales (which were compared to consumer sentiment in Chart 1).
Although Ford has been impacted by the “semiconductor shortage,” it is evident that financial measures, particularly in the past two quarters, have weathered the headwinds.
However, that doesn’t take away from the fact that its performance on unit shipments was among the worst compared to US automakers (Table 1). Delayed shipments of 325,000 vehicles were partly responsible for the overall decrease (Table 2), but it remains to be seen whether the company’s announced transition to electric vehicles will further hamper shipments in 2022.
Ford’s stock price offset lower US auto sales, consistent with the financial metrics in Table 3.
Clearly, automakers are paralyzed in the transition to electric cars. It’s called green. Government regulations are forcing automakers to scramble to meet tough emissions targets in Europe, China and the United States, led by California with its zero-emissions mandate.