An unprecedented and intensifying shortage of materials, notably semiconductors, is creating a supply-demand mismatch in Europe's automotive sector that could last until H1 2022. This creates a unique window of opportunity for carmakers to raise prices by +3-6% after nearly 20 years of constraints. Over the first half of this year, demand for new vehicles in Europe benefited from the grand reopening: new car registrations grew by +25.2% to almost 5.4mn passenger cars (+1.354mn units) compared to the first half of 2020, with significant double-digit gains in most countries, notably the top four markets (+14.9% in Germany, +28.9% in France, +51.4% in Italy and +34.4% in Spain). This improvement is not yet sufficient to recover pre-crisis volumes since the first half of 2019 recorded 6.916mn passenger cars (i.e. +1.553mn units). Nevertheless, it has already and noticeably contributed to improving business sentiment in the sector, as evidenced by Eurostat business surveys  on factors limiting production. According to the latter, in Q2 2021, the factor “demand” posted a large drop from the high levels reached in Q2 and Q3 2020 to reach H1 2019 levels, i.e below the long-term average.

However, this same survey also indicates a severe rebound of material/equipment as a key factor limiting production. The latter reached an all-time high in Q2, well above the previous records seen in 2018 and 2020, which were explained, respectively, by the regulatory changes in CO2 emissions and supply-chain disruptions due to the lockdowns. This historic level of material/equipment shortages is highly related to the lack of semiconductors , which has been exacerbated by the wide adoption among carmakers of just-in time processes of production dedicated to minimize the stockpiling of all types of inputs. Indeed, over the first half of the year, all carmakers continued to emphasize their obligation to optimize assembly lines and even to cut back production. 

In both April and May, at the EU-27 level, the volume index of production for the overall automotive sector   fell back to its lowest monthly levels since the early 2010s — by -3.4% m/m and -7.8% m/m, respectively — with most car-manufacturing countries contributing to the drop, including the major ones. In this context, the level of production reached in May was still well below the pre-crisis level for the EU (-23% compared to 2019 average), with a stronger hit for established car producers (-33% for France, -30% for Germany, -25% for Spain and -10% for Italy) than for the other car-producing countries such as Czechia (-6%), Sweden (-6%) and Hungary (-5%). 

Looking at past episodes of material/equipment shortages, the intensity  of the constraint reached in Q2 2021 appears to exceed the standard deviation observed in the past within Europe by 2.5 times. This shortage intensity looks particularly severe for Germany and Spain (i.e. 51% of EU production) and to a lesser extent in smaller car-producing countries such as Finland, the Netherlands and Slovakia. Differences in shortage intensity reflect differences in anticipation in demand (which led to differences in orders cut), uneven relationchips with suppliers (short-term vs long-term contracts, closer partnership allowing better access to inputs) and differences in types of needs in car chips (chip shortages are  higher for power management and microcontrollers than for Advanced Driver-Assistance Systems products).