Global Chip Supply Shortage Has Reduced Production Capacity Of VW And Stellantis, 1.4 Million Cars Failed

JAKARTA - A shortage of global semiconductor chips meant that Volkswagen and Stellantis lost a total production of 1.4 million vehicles in the third quarter. Europe's two largest automakers said this on Thursday, October 28. But now both report that there are some early signs of improvement.

Volkswagen AG, Europe's largest automaker and also the world's No. 2, cut its delivery outlook, lowered sales expectations, and warned of cost cuts as it reported a lower-than-expected quarterly operating profit.

The German company said it had made about 800.000 fewer cars, or about 35% fewer than in the same quarter in 2020.

Stellantis, the world's fourth-largest automaker, posted a 14% drop in Pro-forma quarterly revenue after a chip shortage slashed planned quarterly production by 30%, or 600.000 vehicles.

Stellantis chief financial officer Richard Palmer reported a "moderate" increase in chip supply in October and expects it to continue into the fourth quarter. But he added supply chain problems meant it was difficult to make predictions about the shortage of automotive semiconductors, which has plagued the industry for most of the year.

"Visibility in semiconductors continues to be a difficult subject for the industry," Palmer said.

Automakers, which closed factories due to the ongoing COVID-19 pandemic last year, are finding themselves competing with the sprawling consumer electronics industry for chip supplies.

Supply chain disruptions from a fire at a chip-making plant in Japan to the coronavirus lockdown in Malaysia, a global chip supply hub, have only added to the industry's problems.

A shortage of chips, which are used in everything from brake sensors to power steering to entertainment systems, has forced automakers around the world to cut or suspend production, ultimately pushing prices for new and used vehicles up amid strong consumer demand.

Stellantis' new vehicle inventories fell more than 42% year-on-year at the end of September.

Palmer told analysts that, "given the volatility of the market," Stellantis does not currently expect a major production increase in 2022, but will focus more on maintaining price levels while battling rising raw material costs.

He said the production loss could push Stellantis 2021 earnings "slightly lower" than previously estimated.

Volkswagen's chief financial officer, Arno Antlitz, said the chip shortage "made us very clear that we haven't been sufficiently resilient to fluctuations in capacity utilization."

"Although the visibility of the situation remains difficult to predict, we see the beginning of a stabilization of chip supply and expect" major financials to improve in the fourth quarter," Antlitz told reporters.

Volkswagen made a third-quarter operating profit of 2.8 billion euros (IDR 46.3 trillion), down 12% on last year and lower than Refinitiv's 2.99 billion euro (IDR 47.9 trillion) forecast. But the company, which aims to overtake Tesla as the world's largest electric vehicle (EV) seller by mid-decade, confirming its operating profit margin target of 6.0-7.5% for 2021.

"Clearly, the current volatility brutally demonstrates Volkswagen's very high fixed costs particularly in the performance of the VW brand, which also appears to bear most of the semiconductor-related shortfall," Bernstein analyst Arndt Ellinghorst wrote in a client note.

Stellantis, formed earlier in the year from the merger of Fiat Chrysler and France's PSA, confirmed its full-year target for an adjusted operating profit margin of around 10%.

Other major automakers, including General Motors) and Renault, also had quarterly results hurt by the chip crisis.