Auto bottlenecks persist
Global vehicle production recovery delayed until 2023 amid mounting supply chain risks.
We believe that the combination of the continuing semiconductor shortage, shipping delays and the growing risk of energy shortages will serve to restrict global vehicle production throughout 2022.
Additionally, the high rate of new Omicron coronavirus infections will pose a further downside risk as localised lockdowns, especially in China, will result in production stoppages for vehicles and the wider supply chain.
As well, the global electric vehicle (EV) segment faces a battery shortage risk for the entire decade as the supply of batteries and the raw materials used in them remains tight. We do not see existing and planned battery production and recycling capacity being sufficient to meet the expected demand over our forecast period.
Despite these elevated risks, we expect vehicle production to expand in 2022 as the industry continues to recover from output losses in 2020 and 2021.
We forecast global vehicle output to expand by 7.7% in 2022 to reach an annual volume of 92.6 million units, a slowdown from estimated global production growth of 10.7% in 2021. China's vehicle output will account for 32.8% of global output in 2022, the US 10% and Japan 9.8%.
While global vehicle production volume will surpass that of 2019 (92.3 million units) in 2022, we only expect output to surpass the 2018 figure (93.5 million) by the end of 2023 at 96.2 million units.
The fast pace at which the Omicron variant is spreading globally will result in direct (health and safety-related stoppages) and indirect (component shortages) disruptions to vehicle production over 2022.
China's "zero-Covid" strategy in particular will have a global impact given the role China still plays in the global automotive supply chain. We expect Beijing's zero-Covid strategy to remain in place through the entirety of 2022.
POWER SUPPLY RISK
High energy prices globally, the rationing of electricity and the risk of outages will add to the headwinds and could see additional unplanned operational stoppages in the auto and parts industries.
While China continues to experience power shortages and cuts, it is by no means the only country at risk. Parts of Europe, India, Japan, Indonesia and South Africa will also continue to face a high degree of risk throughout 2022.
China is facing an acute energy crisis as a confluence of strong demand, low stocks, high import prices and energy targets have driven fuel shortages. China's power shortages will have a global impact on manufacturing and on refining of raw materials, resulting in a further slowdown in global vehicle output.
This risk has been exacerbated by Indonesia, one of the world's largest exporters of thermal coal and China's largest overseas supplier, moving to curb coal exports in order to avoid outages at its own power plants. This is on top of the ongoing coal import ban on Australia.
Jakarta initially said it would impose an outright ban on exports but relented on Jan 11 after major coal-importing countries expressed concern. A levy on overseas shipments is now being considered instead. While an export ban would have the most significant impact on China, Indonesia is one of the world's top five thermal coal exporters, so there will be impact on other large vehicle producing countries that source coal from Indonesia.
CHIP SHORTAGE PERSISTS
We expect semiconductor supplies will not start to show signs of improvement until the second half of 2022. However, there will still be a shortage to some extent until mid-2023.
Additionally, the continued increase in the price of chips will lead some high-volume automakers to stop production rather than have to pay more for chips and further squeeze profit margins. Indeed, Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest producer, raised prices between 10% and 20% in 2021 and is planning increases of up to 30% this year. This means that one of the most expensive components of a car will become much more expensive and drive up production costs.
We believe the continued strong demand for EVs will likely result in a shortage of batteries from 2022 onward as the EV supply chain comes under strain. We again highlight China's dominance in the global EV supply chain, as any disruption in local battery production or metal refining will negatively affect the ability of automakers to produce EVs.
We forecast global EV sales will expand by 40.3% in 2022 to 7.8 million units. This will drive the global EV penetration rate to 8.2% of all vehicle sales, up from an estimated 6.2% in 2021. Continued strong demand for EVs will result in the already tight battery market, tightening further if any part of the supply chain in China is disrupted.
Lastly, we look at the outlook for key materials used in batteries to highlight the risk of a battery shortage not just over 2022, but also over the longer term through 2030:
Lithium: In spite of strong production growth in the years to come, we forecast the global lithium market to remain very tight in the coming years as the green transition accelerates, boosting demand for batteries spanning from EVs to utility-scale batteries. We also expect the market to record increasingly large deficits out to 2030.
Cobalt: The global cobalt supply chain is set to remain highly geographically concentrated -- in the Democratic Republic of Congo for mining and in China for refining -- which will likely pose procurement challenges for battery manufacturers. However, there is a solid global project pipeline, due to the rise in cobalt prices and the expected demand boom.
Nickel: Battery-grade nickel, or Class 1 nickel, used in rechargeable batteries will remain a major beneficiary of the global green transition, especially as the configuration of lithium nickel manganese cobalt (NMC) oxide batteries used in electric vehicles is changing, with a shift from a 111 ratio to the latest 811 ratio. Consequently, Class 1 nickel will see demand outstripping supply in the coming years.